All You Need to Know About Unsecured Business Loans

If you're a business owner, you'll know that adequate and continuous cash inflow is what drives business growth. Whether you're a salon or a food truck, every business needs a constant influx of cash to keep it running. You never know when or why you may need extra funds. You may have to purchase equipment, pay your employees, take care of large orders or even start expansion efforts. If you're relatively big and have been in business for more than five years, arranging cash is more manageable. But smaller companies might find it harder. That's why banks and other financial lenders offer business loans to such struggling business owners. 

Business loans are generally divided into two categories: secured and unsecured. Secured business loans are those that are given when you pledge assets as collateral against them. Unsecured loans online are those that are provided solely based on your credit history and business cash flow. So, small businesses are the most likely contenders for small unsecured loans because they're just starting out. In this article, we list out their benefits & drawbacks.

PROS

1.No Collateral Required

We're starting with this point as it's the most essential and helpful benefit unsecured loans online offer. There's no need for applicants to provide collateral of any sort. This makes it an excellent choice for small and medium-sized businesses that have just started out or are looking to expand their operations. If such companies need cash, availing of a small unsecured loan is a great idea. They don't have to worry about assets, stock, property or anything like that.

2.No Restrictions on Usage

Once your online unsecured loan is approved, you can use the funds to meet a wide variety of business needs without worrying. Be it purchasing new equipment or buying more raw material to fulfil a large order; you name it. As the business owner, you can spend the money as you see fit. Still, it would be best to use it to meet business expenses (this goes without saying). This is a relief compared to auto loans or home loans, where you can use the loan amount only for very fixed purposes.

CONS

1. Higher Interest Rates

Since unsecured loans online don't come with any collateral, they are a precarious proposition for lenders. Lenders are stringent and picky while evaluating loan applications. They also offer higher interest rates on small unsecured loans (compared to secured ones). The rate of interest that your lender finally provides you is based on your credit score, your repayment capacity, and how well your business is doing.

2. Smaller Loan Amounts

Since lenders don’t have the safety net of collateral with unsecured loans online, they are only comfortable disbursing smaller loan amounts first. We recommend starting small, proving your repayment capacity, and slowly progressing towards higher loan amounts.      

 Wrap Up

We’ve listed all you need to know about unsecured loans in the above article. Now, it’s up to you to decide between a secured and unsecured loan, should you ever need one in the future.


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