Starting out a new business is a huge responsibility that involves a lot of sleepless nights, organization, and a predetermined budget to cover all business-related expenses. Can you handle all of that? If yes, then congratulations for becoming a business owner that gets to make their own earnings.
But, if you want your business to succeed, you need to put in a lot of work and your energy toward it. This sometimes means making sacrifices and tough decisions that might not be to your liking at all.
One of the most, if not the most, important factors in running a successful business is having the necessary funding. If you’re lacking a couple of thousand dollars, you have the option to qualify for a small business loan.
This is the route that many young and eager entrepreneurs take because they need cash fast! But, what if you don’t have any assets tied to your name to provide as collateral? Don’t worry because you’re not the only one. Can you still get the loan?
In short, yes you can! You can choose to qualify for an unsecured loan, as many before you, which doesn’t require any collateral. You get access to instant cash and the lending institution won’t seize and take control of your asset. Sounds like a dream right?
But, as with any loan, you need to be aware of the pros and cons tied to it. It’s the only way to make the right decision that won’t end up damaging your financial health. Continue reading this article to discover all the benefits and limitations unsecured loans offer.
First, let’s start with the benefits:
Quick and easy approval
As mentioned above, funding is the most important thing when it comes to running a successful business. Every company needs to have a steady income to cover costs like employee salaries, equipment costs, leasing maybe additional space for an expansion, etc.
Since money doesn’t grow on trees, lending institutions can help speed up the process of getting fast cash to a business owner who needs it.
The good news is that unsecured loans are indeed fast! Because there is no requirement to do an assessment of any asset, the processing of unsecured loans is typically quicker, and the money are disbursed rapidly, typically within one or two business days.
The documentation required is also not nearly as comprehensive and tedious as it would be for a secured loan. You just need to prove to the lender that you’re running a legitimate and licensed company. This translates to the fact that you won’t have to sit around and worry about cash in order to have your business up and running immediately.
Since the funds are transferred quickly, take advantage of that and make the necessary purchases or cover the costs of your business so its productivity and effectiveness don’t decrease. That’s what any business owner wants, right? You can look into billigeforbrukslån.no/lån-på-minuttet if you want to discover more helpful information about the topic.
Forget about collateral
This is probably the best benefit unsecured loans offer. It should come as no surprise to you why many people go with this option.
If you own a company, you do not have to put any of your assets, including your home, your car, your gold, or anything else, on the line in order to get the necessary funds. Therefore, a quick and easy loan for any small or medium-sized business is an amazing option to consider.
This way, you can get your income up to where it needs to be and start making payments on the loan. When you take out an unsecured business loan, you won’t be required to make any mortgage payments.
This eliminates the possibility of losing the property, and it also gives you the freedom to do any business upgrades or repairs that you see fit. How amazing is that?
Also, it’s good to remember that because you aren’t using any of your assets as collateral for the loan, the total amount you’ll be able to borrow won’t be based on the value of any of your assets.
You may qualify for a loan in the amount necessary for the company, but approval be based on a number of variables, including your creditworthiness and the maximum amount the lender is willing to provide.
Building credit history
Do you know how important it is to have an amazing credit rating? Very! It’s the sole factor in determining whether you can get approved for a quick loan or not. Now, you should know that secured loans are more flexible regarding your credit rating, because they have your asset to fall back to if you don’t make monthly payments.
On the other hand, unsecured loans don’t work that way. You need to ensure your credit history is already amazing enough to get one. But, if you make your monthly payments on time, there’s hardly anything you need to worry about. This way, you’re already building good credit history.
What does this mean for the future? It means that any future loan you’d like to get will be approved quickly and easily do to your rating! Sounds great, right?
If in the past you’ve taken out an unsecured personal loan and repaid it in full and on time, or if you are currently doing so, this will help you when applying for an unsecured business loan, for example.
Bendable repayment options
Do you know what else is great? Having the option to choose repayment terms that suit your needs best! You’re in luck because a lot of lending institutions offer business owners flexibility in choosing their repayment schedules. Since running a business comes with costs you can’t sometimes predict, it’s only logical for the repayment terms to be flexible.
You will not have to pay any penalties as a result of late or missed payments if you go with this option. a lot of people use loan calculators to get a sense of what they actually have to pay.
Simply enter the appropriate loan amount and payback schedule into an unsecured business loan calculator. This will allow you to determine the amount of the monthly payment that will be required.
Using funds however you like
One of the best advantages that unsecured loans offer is the versatility with which you can use the money. A business is an umbrella term for different branches, job positions and employees. You have the option to use the money however you like as long as you do it responsibly.
For example, the cash may be put to use in a variety of ways, including the expansion of the firm, the purchase of raw materials, the payment of salary to employees, and other activities. Do you know what else is great?
The lending institution won’t ask of you to state your reason behind your loan. Of course, you would need to inform them why the loan is necessary, but once you get your money, they have no say in how or where you use it.
The same is not the case with secured loans because they require a lot more information and paperwork to be done in order to get an approval.
Complete control
You want to have complete control over your business right? After all, it’s you who’ve started it in the first place. Businesses, in general, can increase their income through various methods. This doesn’t mean you have to use all of your cash in order to generate income.
For example, private investors will want to look into your services and decide they want to invest in them. An investment like that gives you money. However, as part of the financial transaction, you’ll be required to give them a stake in your company. Once you’ve given them stock, they can pretty much dictate how the business is operated. This can become a huge headache for many business owners.
Also, investors who put up their own money have a say in management and profit distribution. If you aren’t comfortable with this option, you always have a say in the matter and can choose to take a different route.
You should know that when you apply for a loan for your business without putting up any collateral, you’ve full authority over how the money is spent and earned. If you prefer it this way, go ahead and fill out an application as soon as possible!
What are the disadvantages of unsecured loans?
As we’ve mentioned above, there are also limitation tied to taking out an unsecured loan for your business expenses. The primary disadvantage is that they offer high interest rates. Why is this so? Well, this is because the lenders don’t have your asset to fall back to in case you don’t provide monthly payments.
This poses a risk for them, so they have to rely on high interest rates for your repayment terms.
Another thing that might be considered a limitation is the requirement for a good credit score. Not many people have good credit rating when they apply for any type of loan.
But, since you don’t offer collateral, the lender will definitely want to look into your rating to see if they can trust you with the transaction. If you have nothing to worry about, you can get approved quickly! If your credit rating is bad, they can reject your application.
Lastly, you will need to provide certain documents to get the loan. There’s not that much paperwork involved in the process, but lenders will definitely want to see your license, bank statements, registration certificates, GST returns, list of existing loans, etc.
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