Unsecured Business Loans: A More Flexible Choice for Cash Flow

April 12, 2023 EC Funding

There comes a time in many small business owners’ careers when they realize that they temporarily need extra cash to cover short-term expenses. If you find yourself in this scenario, consider the possibility applying for a business loan.

When choosing the type of loan best suited for your business situation, it can be confusing with all the different factors. The choice between a secured or unsecured loan is ultimately yours. Knowing the difference can benefit your business with financial ease.

Approval for an Unsecured Loan

While secured loans guarantee the lender the ability to repossess collateral from the borrower in the event that the borrower defaults on the debt, unsecured business loans do not require the borrower to offer collateral. Lending institutions can mitigate the risk of lending money without having the borrower offer any tangible assets which can be used to recoup the value of the loan in case of a default by investigating the borrower’s creditworthiness.

If you are considering applying for a loan, it is important to make sure that your credit history shows that you are a good candidate whom the lender can trust. Make sure you have a history of paying your bills and doing so in a timely manner. Remember that the lender relying on your word when you say you will make your payments, so they will want to make sure you are somebody who they can trust.

Can count on Express Capital to answer your any questions regarding credit history and financing options. Speak to your dedicated loan specialist to help you with an unsecured business loan.

Benefits of Selecting Unsecured Business Loans

Due to higher risk to lenders, unsecured business loans will tend to have a higher interest rate than their secured counterparts; however, the flexibility of an unsecured loan can make it preferable to a secured loan for a variety of reasons despite the difference in interest rates. Express Capital determines interest rates a bit different than traditional or online lenders. Rates depend on credit history, monthly deposits and other factors.

1. No Risk to Collateral

Unsecured business loans do not require the borrower to provide any collateral to the lender; this is the defining difference between unsecured vs. secured loans. If you borrow money on an unsecured basis and then an unforeseen circumstance occurs, which prevents you from paying back the loan, there is no risk of your property being claimed by the lender.

Defaulting on the loan could negatively affect the credit of your business (which is true regardless of whether or not the loan was secured with collateral), but it will not result in your business’s property being sold to pay off the loan.


2. Borrow More Money Than You Have Available

One very common scenario where companies apply for unsecured business loans is when they need money early in the company’s existence, before the company has accumulated a lot of assets. Of course, business owners know that this is a time when you need money most of all and obtaining a secured loan is very difficult due to the company’s lack of resources to offer as collateral.

As long as you pay your company’s bills and ensure your company is creditworthy, though, you can still borrow money with an unsecured loan despite the absence of resources to offer as collateral.

Businesses often face cash flow challenges. Providing the best Short-Term Working Capital Solutions will grow the business’ cash flow.

3.  Get out of Debt Faster

Unsecured business loans typically have shorter repayment periods than secured loans. The reason for this is due to the greater risk to the lender of having unsecured funds lent out. When repayment takes longer, there is more time for an emergency to occur and cause the borrower to default on the debt.

The shorter repayment period can be an advantage for the borrower. In many cases, you may need a loan to cover a short-term expense. The business revenue you need to cover expenses is coming slightly too late. To cover expenses on time, securing a loan can support business efforts. Pay the loan back quick to avoid staying in debt too long. In such a situation, the shorter repayment period is an advantage. Some longer-term loans may even charge a fee for paying the loan off early.


4. Difference in Interest Rate Is Less Pronounced in the Short Term

When planning to borrow money on a short-term basis, the slightly higher interest rates for unsecured small business loans are worth the peace-of-mind knowing there is no risk to your collateral in the event of an emergency preventing you from making your loan payments. When interest has more time to accumulate, the difference in interest rates has a greater effect.

Over the course of a short loan, there is less time for interest to accumulate, which means that a slight difference in interest rate will not cost as much. In some ways, this is similar to the idea of buying insurance. Just like how you pay a small amount to the insurance company so that you will not be responsible for a large amount in an emergency, with an unsecured loan you pay a bit extra to the lender so that you will not be responsible for a huge amount up to the value of the loan.


Getting Started With Unsecured Business Loans

Choosing an unsecured loan has plenty of advantages over a loan with collateral.  To get started with the process, we find choosing a lender to best accommodate your business’ unique financial situation is a good idea.

Different lenders may offer loans with different interest rates, repayment periods, or fees. Shopping around gives you the opportunity to choose the lender who is offering a product that is most conducive to your business goals.

Unsecured business loans offer a measure of flexibility that secured loans cannot match. The secure knowledge that you will not have to forfeit your property if unforeseen circumstances prevent you from paying off your loan, the ability to borrow money despite not possessing significant assets, and the capability to get out of debt quickly are all strong reasons to consider an unsecured loan.

An unsecured loan may not be right for all small businesses, contact Express Capital to determine if it is right for you.

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.