Everything You’ve Ever Wondered About Unsecured Business Loans

April 20, 2022 EC Funding

Are you looking for funding for your business but have no idea where to start?

There are many different funding options available from credit cards to loans to lines of credit.

But Steve Cooper, the head of Barclays Business, says one of these funding options stands above the rest: unsecured business loans.

Unsecured business loans are an easier way to secure funding for your business and they’re perfect for small to medium-size businesses.

Ready to learn more? Here’s everything you’ve ever wondered about this unique loan.

Unsecured Business Loans vs Secured Loans

Let’s start with the basics: the difference between unsecured and secured business loans.

Secured Loans

A secured loan requires you to put up some kind of collateral. In many cases, you’ll put up your house or car as a way of promising the bank you’ll pay back the loan.

The collateral shows the lender you have assets they can have in the event you default on your loan. And you guessed it – the lender will come for your collateral in the event you fail to repay your loan.

Unsecured Loans

An unsecured loan is any loan that you don’t need to put up collateral for. It’s based solely on your promise to pay back what you owe.

You might have also heard people refer to these loans as a “signature loan”. Signing the dotted line is the only thing required to receive unsecured business loans.

Still not sure what that means?

Here’s a quick example:

If you take out an auto loan under your business, it’s a secured loan. Why? Because if you stop paying your auto loan, then the lender will repossess your car.

Mortgages are also secured because the bank will foreclose on your house if you default.

If the loan is unsecured, the bank demonstrates confidence in your ability to pay the loan back without asking for a valuable guarantee.

For example, they’ll give you $15,000 for business development. But they won’t ask you to put your business vehicle or your personal vehicle on the line as collateral. It’s just a straight loan.

Your ability to pay is the biggest factor, so let’s dive deeper.

How Do I Get Approved for an Unsecured Loan?

Unsecured loans are a way to inject money into your business while protecting your personal assets.

But how do you get approved for an unsecured loan?

If you were applying for an unsecured personal loan, the bank would look at your credit and your income.

These two factors tell them how much money you make, which speaks to your ability to afford the loan and your history of paying back lenders.

These factors change slightly when you’re looking at unsecured business loans.

To qualify for a loan, you’ll need to provide evidence of your business’s earnings, projections, credit, and detailed information about your business.

You’ll maybe asked to provide documents like:

  • Balance sheets
  • Bank statements
  • Personal credit history

The complete list of documents you need to submit depends on the size and type of your business as well as your creditworthiness. All lenders will ask for or on only one of these documents so check out which lender makes it easier for you.

The Benefits of Unsecured Business Loans

You’ve qualified for an unsecured business loan, but why should you choose this kind of financing?

There are a few good reasons to consider these loans.

No Collateral

Most small businesses don’t have the kind of collateral lenders want for a secured loan. It’s what leads small business owners to secure their loans against their personal home or vehicle.

When the bank doesn’t ask for security, your personal assets are protected.

As an added benefit, using a property as collateral involves far more paperwork and effort than unsecured loans. Going the unsecured route saves you and the bank time, effort, and money.

Borrowing Capacity

Because the loan isn’t tied to the value of your assets or collateral, it’s sometimes possible to borrow more money with an unsecured loan than you might with a secured loan.

When you take out a secured loan, the value of the loan is barred from exceeding a set percentage of the value of the collateral offered.

As a result, unsecured business loans can range from $2,500 to $1 million.

Spending Flexibility

A secured loan will allow you to use the funds for a specific purpose. Common requirements include the purchase of equipment, vehicles, or inventory.

Rigid loans are fine if you’re an established business hoping to make a specific investment. But new businesses often find they need more flexibility in their spending

An unsecured loan can be taken out to help your business grow through an investment in equipment. But it can also be used to cover your payroll during a slow month.

Ultimately, an unsecured loan is more likely to help you stay afloat in an emergency rather than adding to your burden.

The benefits of unsecured business loans make them a great option in certain scenarios. But they come with some strings that are always worth considering if you’re going through a rough phase and strapped for cash.

First, the trade-off for not providing collateral is sometimes a higher interest rate. You’ll receive the money faster.

Second, unsecured loans often feature shorter terms. A secured business loan might offer a five-year term, but unsecured loans may need to be paid back in 1-12 months.

Because of these things, you’ll need to be sure the return on your loan is not only worthwhile but works with your business needs.

Is an Unsecured Business Loan Right for You?

Unsecured business loans offer an opportunity to inject a bit of cash into your business without the hassle of collateral.

Is an unsecured loan the right financial choice for you? Ask Express Capital Funding.

Express Capital provide short term unsecured business loans to creditworthy customers on the day of application.

Whether you need a small amount to get you through or $150k to grow your business, we’re here to help you increase your revenue – not enrich middleman banks and lenders.

Ready to learn more? Connect with us to find out what loan will help you reach your goals.

If you have any questions on how Working Capital can help your cash flow or to learn more, please give us a call at 888-513-9937.