Everything You Need to Know About an Unsecured Business Loan
Most Business loans operate on the principle of collateral. Collateral is nothing but an asset or a piece of property. The borrower offers this to the lender as a security measure in case he/she defaults on the repayment of the loan.
Thus, the lender has the right to seize the asset and use it to mitigate some of his losses. The use of collateral is widely promulgated and practiced in the world of business loans.
What is an Unsecured Business Loan?
An unsecured business loan is given out based on the credit-worthiness of the borrower. Such a loan does not require collateral. It’s a great way of funding small start-ups. A borrower who has a strong history of credit may qualify for an unsecured business loan.
It is imperative that borrowers show a strong credit score and above to fulfil the eligibility criteria of an unsecured business funding.
What Are The Eligibility Criteria For Unsecured Business Loans
- A thorough and stringent check of the borrower’s credit status which includes scrutinising all financial transactions.
- Small start-ups and companies which have limited assets can apply for unsecured business loans with poor credit.
- There is also a need for company owners and directors to sign bank guarantees. You can apply with last 6 months bank statements and ID proof.
- A general lien could also be applied to the start-up’s business assets. This makes the application process more impartial. It allows small companies to access funding and capital without the headache of mortgaging their assets.
Types of Unsecured Business Loans:
Revolving loans are loans which have a credit limit that can be spent, repaid, and spent again. Term loans are associated primarily with the repayment of the loan in the form of equated monthly instalments or EMIs.
Benefits of Unsecured Business Loans:
- Saves Time – If you have honed on to an online lender, consider yourself incredibly fortunate. Online lenders are usually synonymous with expeditious approval. This essentially means that businesses that are short on time could have the money in their bank accounts within 24 to 48 hours.
- No collateral – There is absolutely no collateral involved. The lender is usually making a lending decision on the basis of credit scores, relationship with the lender, the health of your business, and its sales turnover. As a result, you automatically qualify for a larger sum of money. The loan amount is not calculated on the percentage of collateral.
- A fabulous way of building your credit reputation – Most lenders have a policy of reporting your credit and payment history to bureaus. When your business does well, your credit ranking skyrockets. This enhances your credit image in the market.
- Reduced risk to personal assets – As there is no collateral involved, your personal assets like properties, vehicles, commercial facilities, etc. are well protected against seizure.
There are many ways in which you can procure an unsecured business loan. The best type of loan depends on your creditworthiness, your borrowing capability, and how much you can put down. Get in touch with a Business Lending Specialist today.