(Updated on 11th April 2019)
Andrea is upset and worried as she looks around her newly established workshop and surveys half-done consignment lying on the floor. The fear of failure gnaws her as she prays desperately for an immediate cash flow to meet the fast-approaching deadline. Till that time she was not aware of the facilities of unsecured business loan.
Andrea Lee is a young entrepreneur who supplies decorative candles and metal artefacts to a few prominent hotel chains. Everything was going fine, till Day 2 of the batch production. That day she had to arrange a substantial amount of fund to meet a personal emergency. The only option she had was diverting the money from her business. Now that she has landed a new assignment, she is totally clueless about how to arrange fresh fund for the new project!
In cash crunch scenarios like this, the survival of a small business depends on an instant financial boost. Although there are different business financing options available, the one that works best in situations like Andrea’s is an unsecured business loan.
Here I have narrated what are the 5 distinct ways your small business can benefit from collateral-free, unsecured business loans. But before that, I would like to explain what exactly an unsecured business loan is.
What is an Unsecured Business Loan?
Simply speaking, it is a particular financing option where you don’t need to provide any collateral to take a loan. Often the loan approval happens after verifying creditworthiness of the borrower, i.e. the small business owner, in this case. However, online lenders don’t always follow the traditional definition of unsecured business loan.
There are many online financiers who are now offering unsecured business loans without rigorously verifying the owner’s creditworthiness. But they might want to know your business fundamentals to assess whether it is going to survive long term. However the problem is most of these online lending companies offer unsecured loans at interest rates, much higher than banks or traditional finance companies.
Now let’s check out 5 distinct ways a small business can benefit unsecured loans.
Unsecured Loans Can Supercharge the Growth Momentum of Your Business
My interaction with several small business owners always reveals one important fact. Every stage of business operation relies on liquid fund. Be it paying employee salary, settling utility bills, or purchasing equipment, your business needs working capital.
If acute financial crunch is hindering growth of your small business, a collateral-free, unsecured business loan can come to your rescue.
An unsecured business loan gets approved real fast, because of the relaxed documentation process. If applied online, the disbursal usually happens within 48 hours.
This is why unsecured business loans are ideal for small businesses who come up with immediate fund requirements.
Use Hassle-free Unsecured Loan To Meet Different Business Expenses
Borrowers can use unsecured loans for multiple purposes related to their business. This is not the case with secured business loans.
Entrepreneurs who have opted for secured business loan, however, complain about one thing i.e. its limited usage. As a borrower you must specify the exact use of the loan and adhere to it. Moreover, your loan application can get rejected if the intended use fails to convince the lender.
On the other hand, when you avail an unsecured business loan, you are in full control of the fund. Lenders usually don’t interfere with the way you are spending the loan amount.
An Unsecured Business Loan Helps Lower Your Risk Profile
A collateral-free, unsecured business loan is a finance module where borrowers do not need to promise their valuable assets to lenders to get the finance. The loan, being collateral free, reduces risk profile of the borrower.
As a business owner you certainly feel relieved knowing there’s no need to expose your assets to any kind of risk. Therefore this financing option suits small businesses, as most new entrepreneurs find it difficult to arrange assets to get a loan.
Business Owners Enjoy Flexibility to Choose Own Repayment Option
A much-needed feature for small businesses, unsecured business loans give borrowers the option to choose a flexible repayment option according to own convenience.
Borrowers can select a loan tenure between six to thirty-six months, and in most cases, the repayment is allowed on a monthly basis. Some lenders also offer weekly and fortnightly payment options.
The flexibility to choose a suitable tenure and payment option enables small businesses to manage their funds effectively as per the cash flow.
You can Request Customization of The Unsecured Loan to Fit Business Needs
Many banks are now coming up with tailor-made unsecured business loan solutions to help SMEs achieve their business goals. Their offerings are diverse, flexible and uniquely designed to cater to different business models.
There are many online lending platforms that let you customize unsecured loans as per own criteria. And of course they have their loan experts also who can guide you through the process.
To sum it up, unsecured business loans help online and brick-and-mortar small businesses expand and escalate their activities the hassle-free way. However it’s very important to adopt a cautious approach. Do own research to understand the potential risks of an unsecured business loan.
If you are not sure about handling these on your own, I suggest joining a peer group or a business credit insider circle. This way you can have peace of mind and a sense of security. As Warren Buffett famously said, “Risk comes from not knowing what you are doing”, follow the advice always to attain your business goal the risk-free way!
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