Unsecured business loans – What they mean and how they square up against secured business loans

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So you’ve started a small business and everything is going great, but then something happens and now you have some unexpected expenses on your hand. What do you do? Do you just close up shop and wonder what could have been? Of course not! There are plenty options and one of the most popular is getting a small business loan. A small business loan is a financial band-aid which can help you get through tough times and even support your expansion when you’re on a roll. However, the people that are lending you the money need to take precautions as well, and that’s where the terms “unsecured” and “secured” come from when talking about business loans.
Unsecured business loans
These are types of loans that do not require you to put down any collateral for the loan. Collateral is one or multiple assets which represent a guarantee that the lender is getting their money back regardless of whether you’re able to pay directly. If a loan is taken out on the premise of collateral, it means it’s a secured business loan. As you would expect, the unsecured version is much more popular since there’s a much smaller risk involved for the borrower.
The interest rate
While the risk is smaller for you in the case of an unsecured business loan, it is significantly bigger for the lender. This is a business for them which means that they depend on customers like you paying back on time in order for it to remain profitable. If they don’t have the guarantee of collateral, they will up the interest rate, because it’s a bigger risk. That’s why unsecured loans have a higher interest rate in most cases.
Multiple options
When you take out a business loan, you have multiple options in terms of what form it will take. You can get it as a credit card, a personal loan, a corporate bond or even a payday loan. The differences between these are often in the details but knowing what each offers might reveal that one of them heavily outdoes the other in your specific case in terms of benefits.
Alternatives
It’s important to keep in mind that an unsecured business loan is not the only option you have. You might find a much more suitable solution by researching all the options available to you, not just the different variations of unsecured business loans. For example, an unsecured business line of credit might be a fat better alternative for you and your company, in order to carry out your plans. Whether or not those are easier to obtain, that’s another story. But you should definitely find out before inking any type of loan contract.