Is your business in need of working capital? If so, you have a few options at your disposal. One option is to start looking for investors, but many entrepreneurs are hesitant to take this step as it often means giving up equity. Another option is to seek a more traditional bank loan, but that option also has risks. Sure, you might avoid giving away equity in your company, but you usually must put up some other form of collateral to get access to money.
Putting up collateral will almost always expand the loan options at your disposal. Unfortunately, doing so comes with a significant risk. You’ve essentially staked your business assets—or, if you are an entrepreneur with no business assets to speak of, your personal assets—on the success of your company or venture. If you’re lucky, your gamble pays off, and your business is successful. If you aren’t lucky, then you’ve essentially sat yourself down at a poker hand and gone all-in on a losing hand. Depending on the collateral you put up to get the loan, the results can mean anything from the demise of your business to a nightmare for your personal life.
What You Need to Know about Unsecured Business Loans
Maybe your business is growing rapidly, and you need to expand. If so—and if you decide that putting up collateral is the only way you can get the loan you need—take your time to prepare for the loan. Assess the risks. Shop around with different banks and lenders to find the loan where you can get the loan you need with the least collateral.
Finally, go through your assets and make sure you have exact appraisals for each of them. Do not guess on the value of your collateral. Banks and lenders will often undervalue collateral because doing so benefits them. Knowing the exact value of your property, through professional appraisals, will give you some leverage in negotiating agreements about collateral with your lender. If you show proof of your appraisal but still can’t get a fair market valuation from the bank, walk away.
Before you decide that collateral is the only way to get the loan you need, though, take some time to familiarize yourself with the concept of unsecured business loans. An unsecured business loan is different from a secured business loan in that the company applying for the loan will never be expected to put up collateral in exchange for capital, meaning it is essentially a loan without collateral. Banks don’t offer unsecured loans at all, which means that you will have to go through a different type of lender to avoid putting up collateral for your loan. You will also likely have to pay a higher interest rate than you would pay for a secured loan.
However, these two issues—the non-existence of unsecured loans at banks and the higher interest rates of the loans—are the only disadvantages of going the unsecured route. Through the right lender, unsecured loans will have lower credit score demands and will process much faster than their secure counterparts. As a result, you can get your money faster without having to put a vehicle, a house, or a piece of company equipment on the line. With the higher interest rates, it’s not quite a win-win situation, but it’s close.
Finding the Right Unsecured Business Loan for Your Business
It’s also worth noting that not every lender has the same terms for their unsecured business loans. Interest ratings, credit requirements, and other factors will differ from one lender to another. If you are worried that your business might not be able to afford the higher interest rates that typically come with unsecured business loans, shop around and apply to multiple lenders. Taking the time to do your homework will help you find the loan that is going to put the least strain on your business while also giving you the capital you need to expand or just handle routine expenses. If your business doesn’t have great credit—or if you don’t have a lot of credit—shopping around to various lenders will also help you find someone who is willing to give you an unsecured business loan.