subject: Beginner's Guide to Unsecured Small Business Loans [print this page] Beginner's Guide to Unsecured Small Business Loans
In today's beginner's guide to unsecured small business loans we will break down the term into its component parts and discuss each of them in turn. It's also important to understand we are referring to loans, which are disbursed once approval is complete, as opposed to lines of credit that are approved, but are merely available for use. Hopefully by the end of today's discussion you will have a clear picture in your mind of how loans of this type function.
First of all the term unsecured in unsecured small business loans refer to the fact that the loan does not have any collateral backing it. For example if you were to purchase an automobile then the automobile is used to secure a loan. Meaning that if you are unable to make your payments the bank has the right to take the automobile back. Conversely, if you were to go to a bank and ask for money and there was nothing backing the disbursement of funds other than your credit score, then this would be an example of an unsecured personal loan. As a general rule loans with nothing backing them directly have slightly higher interest rates applied. This is to offset the higher risk that bank or other lending institution is taking in giving you the loan. Although there is always legal recourse to attempt to get your money back, it is safer if the loan is backed by something that can be taken without further legal permission or intervention.
Small business in the term unsecured small business loans refers to the size of the business as it pertains to yearly revenues. Although there is no one established criteria for what makes a business a small business typically businesses with revenues under $100,000 per year are considered small businesses. Also for some purposes the number of employees at a business has also determines whether a business is considered small or not. This distinction affects what funds are available to your company and what interest rate. Typically loans for very large corporations have more complex criteria and terms.
So what are unsecured small business loans? They are loans with no backing capital behind them such as the make loan we discussed. They are designed specifically for small businesses which are businesses with revenues below a certain threshold. Finally they are one time disbursements of funds not to be confused with lines of credit which can be used over and over again.
