Most of the time, unsecured business loans get a bad rep from finance gurus because of the so-called high-interest rates. But here’s the thing, the rate of these loans is only slightly higher than traditional secured loans. And this is set up this way by the lenders because you don’t provide collateral. What happens if someone defaults? The lenders put a lot of risk on you so the slightly higher interest rate is worth the price.
These no security loans have a place in the economy because finance institutions who offer these unsecured loans are thriving. People will always need a hand in times of emergencies, and at times, they have no other choice but to go for an unsecured loan that’s easy to acquire. Moreover, you can leverage these loans to put your business in a great position, without placing your assets at risk. By using this loan type strategically, you can use the money to grow your company. Let’s dive in deep below:
Fund Small Purchases
Since the lender is giving you the money with only your promise that you would pay it back, these loans come with increased interest rates. It’s a pretty good deal since you do not put your house, car, or savings account on the line as collateral. Calculate the interest rate to find out exactly how much you will pay before getting the loan. From there, you can use it to fund relatively small purchases, which you are sure you can pay back on time. The bigger interest rate doesn’t pack a mean punch when the amount funded is small. This means you don’t feel the pinch when you pay the loan terms.
Use For Larger Expenditures
Remember, though these unsecured business loans work well for small purchases, you can still use them as an option for much larger expenditures. In a loan with collateral, the lender limits the loan amount to the value of the asset. Hence, if your vehicle is less than $25K, you can’t expect a hundred thousand loan approval. In contrast, a no security loan means you can borrow larger amounts. Do keep in mind that this is risky for the lender, so they still need to evaluate your application before you get the money. Lenders are smart and would never risk liability with a shady company.
Utilize for Rapid Growth
You can go with an unsecured loan when your business is rapidly expanding. Most no security loans come with a short-term repayment period. This is one of the ways the lender mitigates the risk on their end since you don’t provide any assurance with collateral. After receiving the loan, be prepared to make payments right away. Bear in mind that this should not compromise your business’s cash flow to avoid problems. However, if your business is rapidly growing, you can surely quickly pay the loan amount. Having this option gives you the freedom to move forward with your plans because you are assured of securing financing.
Final Wrap Up
If you want to take advantage of these types of loans, you need a superior credit history. When you seek a no collateral loan, you must show the lender you are trustworthy and capable of making payments. Work on both your personal and business credit scores as these nuggets of information tell the lenders what they need to know. They are essentially putting their money to help you grow your business, so they must get a positive return on their investment.
Hence, you must ensure that you pay all your bills on time. Resist the lure of opening too many credit cards or lines of credit. In this industry, the higher your credit score, the lower your interest rates. When you feel confident about your credit score and business plan, go ahead and take advantage of this funding option to grow your business.