Pros and Cons of Trying to Get an Unsecured Business Loan on Bad Credit
An unsecured business loan is a great way for small business startups to get the capital they need for their business endeavor without having to fund the entire operation alone. Any new business, even if the owner is the sole employee, will have some startup costs. These start up costs typically include buying equipment, renting a business space, and initial marketing efforts to drum up business. It’s nearly impossible to pay for these expenses from your personal accounts (unless you have an awesome trust fund), and a small business loan of sorts will be necessary.
There are many different types of loans available to small business owners with bad credit, and an unsecured business loan is often a great option. This article will present a brief description of this type of loan, and the pros and cons of unsecured business loans in order to help you make the best decision when applying for a small business loan.
What is an Unsecured Business Loan?
Before we get into the pros and cons of applying for an unsecured business loan, it’s important to understand what an unsecured business loan even is. In short, unsecured business loans are not guaranteed by any type of property as collateral, and as a result are often a bigger risk to lenders. Since you don’t have to put up any collateral for the loan like you would with a secured loan, it’s generally understood that an unsecured business loan will most often be used to purchase the physical assets that are necessary to get your business up and running.
Since an unsecured business loan does not require you to surrender any kind of collateral to the lender, it’s not as risky for you as the business owner. Loans that are secured by collateral, on the other hand, can be devastating if you default on payment, as not only could you lose your business, you could also lose your home, vehicle, and/or retirement.
Another pro of an unsecured business loan when you have bad credit is that the undersigning process is generally easier than securing other kinds of loans. The process for getting the money into your hands so you can use it to purchase the things you need is much smoother than with a secured loan, even if your credit is not the best. Not only is the process smoother, but it’s also much quicker.
On the negative side of an unsecured business loan, bad credit may make your loan more expensive to pay back over time. As with any kind of loan, having less than perfect credit means you will get a heavier interest rate, and because the loan is unsecured, it is sure to be even larger than other types of loans. On the upside, even if you have bad credit, if you pay back the loan quickly, you are unlikely to have problems with your lender or see hikes in your interest rate.
For more information about applying for an unsecured business loan, contact us at Shield Funding today.