Collateral is required by almost all lenders as a minimum qualification. Consequently, new small businesses and startups seldom apply for unsecured business loans. The rates and terms of these types of loans are between 10% – 30% and have terms of up to 3 or more years. However, lenders cannot seize personal assets even if loans are not repaid. But for security, some lenders may still require debtors to sign a personal guarantee.
4 steps to getting unsecured business loans:
- Learn how unsecured business loans work.
No security or collateral is required to get an unsecured business loan. Approval of loans is based on the credit profile of the person and his business performance.
- Evaluate other unsecured loan options.
Many unsecured business loan options are available in the market today, but it is very risky for no collateral is involved.
- Determine your eligibility.
Your personal credit score, as well as other business owners, your business plan, and how much is your capital, are the biggest factors determining your approval.
- Apply for your unsecured business Loan
As soon as you choose the right lender, it’s time to gather the right documentation and apply.
Rates for unsecured business loans
Unsecured business loan rates are typical: APR: 10% – 30% because unsecured loans carry a higher risk for lenders. Coming up with the down payment is considered as the most expensive part in any unsecured business loan.
You will be asked to sign a personal guarantee that places your personal assets as collateral. Some of these assets will help you get your loan approved.
Small business unsecured loan options for startups
- Personal Loans from strong borrowers who need only up to $50k in financing.
- Business Credit Cards are found in the financial toolkit of every startup with credit lines typically less than $20K.
- SBA Loans applied by prime borrowers for a long-term loan need to put down 25 – 30%.
- ROBs borrowers who didn’t apply for a loan and have received a tax-deferred account amounting to $50k+ of retirement savings.
Personal loans are of lesser amounts. Your signature is affixed on a guarantee which put all your personal assets at risk for non-payment.
Find personal loans at your local bank or through an online lender.
Credit Cards for small business
Many small business credit cards carry rewards that pay you for using your cards monthly. Interest rates of a common small business card range from 14% – 24%. You pay interest only on what you owe at the end of your billing cycle, so if your card is paid monthly, you won’t pay any charges.
SBA Loans for Startups
They are good as working capital to help grow your business because they have repayment terms of 10 – 25 years with loan rates between 4.71 – 9.25%. However, SBA loans require approved lenders to avail collateral for both business and personal loans and up to 100% of the loan amount.
Rollover for Business Startups (ROBS)
ROBS is not a loan and there are no weekly or monthly payments. Instead, ROBS is a really flexible financing method that can be used to kick-start, buy, or grow a business.
Unsecured business loans have these advantages
- Absence of risks
There is no risk of losing your home as personal assets are not offered as collateral.
- Pre-requisites are less stringent.
A business that has been running for at least 6 months and having a minimum annual turnover of $50,000 is considered good in your application.
- Fast application and approval
It is fast with no need for time-consuming paper work and you can apply based on your own time 24/7, 365 days a year.
- No guesswork, transparent repayment schedule
Upon approval, the interest rate of the business loans rate is determined alongside with a repayment schedule of your loans. Transparent repayment schedule shows the rate and no changes on payment during the duration of your loan.
- Lend don’t look at credit history as the only factor for loan approval
It’s quite common for alternative lenders to offer loans to business owners that do not meet the bank’s requirement and they are allowed to access funds needed for growth.
- Focus on flexibility
You have the option to choose the amount of the desired loan anytime you need it as some lenders allow payment anytime without penalty.
Why get an unsecured business loan?
As a tailored finance solution, unsecured business loans are based on the healthy state of your business as well as your ability to repay. These easy business loans are designed to let your business grow, develop and expand without any risk on your assets and property. Always remember that those unsecured loans have higher interest rates but they are good as fast small business loans for your business to thrive. You need to be sure that you can pay back the loan. In doing so, unsecured small business loans can have a huge positive impact on your business.
Joshua is a financial lawyer who plans on writing a book about his experience on debt collection laws and lending terms and conditions. He is currently one of the senior partners at his law firm but wants to take more time off for his writing.
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