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Published On: Thu, Feb 1st, 2018

Should You Get an Unsecured Business Loan?

Out of the different loan options available out there, there are times when an unsecured business loan might be the most advantageous in certain instances. You’ll get plenty of advantages in return such as a quick turnaround and the flexibility of options for its features. However, it’s not going to be all about sunshine and candies when you’re applying for such a loan.

There are some disadvantages that you should know about when you’re planning on getting an unsecured business loan. In this post, we’re going to take a quick look at some of the advantages and disadvantages of this type of loan.

photo 401(K) 2012 via Flickr

Pro: There’s No Collateral Required

Most loans you get from banks and financial institutions are secured, and it means you’re required to have a collateral before you can acquire the financial assistance. Hence, if by any chance that you can’t pay off the loan, then the lender will repossess the property. Unsecured business loans, on the other hand, do not have such a requirement. Therefore, you can get the loan you want without having to go through a lengthy process of appraisals and confirmations before you can get the monetary aid.

Pro: The Amount of the Loan Isn’t Limited to the Value of an Asset

Secured loans require you to only borrow money that’s equivalent to the asset you’re willing to use as collateral. Most banks and lending companies would generally loan you about 60 to 70% of the total market value of the collateral. Of course, the lender still has to assess or appraise the value of the asset before you can get the loan, and the process can take days or even weeks before the process is complete. Unsecured business loans aren’t constrained to these conditions. Furthermore, the amount you can get from the lending association can depend purely on your credit score and the current cash flow of your business.

Con: Higher Interest Rates

Since the unsecured business loan doesn’t require any form of collateral, it does require higher interest rates as compared to getting secured loans. The rates can skyrocket depending on the lender, and it also depends on your credit score. So if you’re prepared to take the risk of paying higher interest rates than secured loans, then getting an unsecured business loan might be a good path for you to take.

Aside from having to deal with higher interest rates, you may also have to rely on smaller loan amounts than what secured loans can offer. Furthermore, there are also short tenures and you’re seen as a liability all the time since there’s no collateral involved. In other words, the lending firm can still drag you to court if in case you default on your loan.

Author: Shacks J

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

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