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If you are an entrepreneur with a business of any size, it stands to reason that you may one day need a business loan. Small businesses may require loans for a variety of reasons, including equipment upgrades, purchasing real estate, expanding operations, purchasing inventory or increasing working capital.
Borrowing money can be an expensive and risky undertaking for a small company. This is because borrowing money introduces another level of risk to your business. If you cannot repay the loan, it could be disastrous. However, sometimes the benefits of pursuing a business loan outweigh the risks.
Types of business loans
The two most common types of business loans are secured loans and unsecured loans. As their names suggest, a secured business loan is backed by collateral (such as a building or other asset), while an unsecured business loan is not.
About unsecured business loans
If you opt for an unsecured business loan, the lender won’t require your business to pledge any collateral to secure the loan. This means that your assets remain yours. However, your business will still have to meet standards of income and credit requirements. An unsecured business loan can range anywhere from a couple thousand dollars all the way into the millions, depending on the size of the business and its credit rating. There are also some lenders that offer a revolving line of unsecured credit to qualifying businesses.
Benefits of unsecured business loans
Unsecured business loans have a few key benefits over secured business loans. For one, they allow most small business to qualify for fast approval. This means that some businesses can apply and be approved in minutes and see the money arrive to their back accounts within 24 to 48 hours.
As mentioned above, unsecured business loans also require no collateral to secure the loan. There is no need to secure the debt with property, vehicles, or other assets. This allows a business to acquire good credit without any loss of property if the loan defaults.
Typically, unsecured loans are also open-ended. What this means is that the loan does not necessarily run on a term or have a pre-determined date of repayment, unlike secured loans. Of course, you will still have to meet certain approval guidelines and make payments as agreed, and avoid defaulting on the loan.
Unsecured business loans also give you the freedom to use the funds as needed—so long as they are used for legitimate business expenses. This means that you do not have to apply the loan towards one specific item or purpose, such as upgrading equipment or increasing working capital. Instead, you can use the money as needed without informing the lender what it is you are using the money for.
While all loans come with risks, the question you must ask is; do the benefits outweigh the risks? Businesses require money to expand, and sometimes a business must take on risk to grow or overcome temporary challenges. If you need a loan to transform your professional dreams into a profitable reality, you will find that a mix of loan-types will give you the flexibility you need.