Some people wish to start their company but are not able to obtain the funds to start their own company. Even if they find some traditional sources like financial institutions and banks, still they have to encounter the problem of submitting the collateral. Every person is not extremely wealthy neither is every small business very flourishing. Hence every business owner cannot fulfill the collateral requirements of the banks.
Unsecured loan for business can be obtained from various other sources by those people who are in need of capital to start a venture but have been receiving denials from banks. Majority of business loans are made available with the condition of providing collateral security, i.e., equipment or property.
1) What is collateral?
Collateral is a property that you deposit in the bank to secure the loan that you have taken. When you submit collateral, you put both your personal as well as business assets at risk. It is necessary because lenders need to keep their money safe.
Otherwise, if a borrower does not repay the money on time, then the bank will have to go through losses. To avoid such losses, they demand collateral from the borrowing company so that they can recover their amount in case the company turns out to be a defaulter. Therefore, the loan provider gets an assurance that his money is safe even in the worst case scenarios.
2) What is an unsecured loan for business and how does it work?
An unsecured loan means you do not have to submit any collateral to finance your small business. These are the best options for the companies that cannot arrange collateral. The companies that offer loans, which are unsecured are taking a very high risk. Unsecured loans for business are demanded by the companies that belong to a riskier bracket, which is why some of the lenders of such kind of loan charge a high rate of interest from the borrowers.
That is how the lenders protect themselves even in the event of default. Therefore, they can recover most of their money in the end even after giving out an unsecured loan. They recover their amount from the payments of monthly interest.
On the other hand, there are some lenders of an unsecured loan for business like MCA providers that fix their terms of repayment by monthly credit card receipts of the business, which is an even more convenient option for small business and startups.
3) Where to get an unsecured loan for business
If you are looking for an unsecured loan for your small business, then here are some of the options that you can consider:
a) Business lines for credit
Business lines for credit are generally not secured that means you do not have to submit any collateral security. They provide revolving credit access to the owner of small business, which a proprietor has the authority to draw whenever he or she wants. The best thing about this source of an unsecured loan for business is that you are only liable for the interest of the amount, which you drew by using the line of credit.
Moreover, you have the authority to use a line of credit for any motive. Hence it becomes a very viable option for an unsecured loan for business entrepreneurs. Once you commence a business, you are not sure what expenses you may face in the coming future. This is a very flexible option of financing.
- b) Merchant Cash Advance
If you are worried about collateral requirements while applying for a loan, then you must proceed with an MCA. You will receive a lump sum loan amount in exchange for the future receivables for debit and credit cards.
An MCA is the easiest way to obtain finances. Another name of MCA is cash advance. The amount, which the providers of Merchant Cash Advance provide to the owners of small business, can be used by them in expanding their business, for purchasing assets, or for meeting up with the daily business operations.
There is no better option than MCA when it comes to small business and startup financing. Another amazing thing about this option is that it provides funding to the companies having a poor credit score. Merchant Cash Advance as a source of unsecured loan for business comes with a bundle of advantages for the small business and startups.
c) Business credit cards
If you are an owner of a startup venture, then this can be a very helpful tool of financing. Again, this source is beneficial as no condition of collateral is there at the time of applying. Plus, you are not obligated to share the financial information of your small business if you apply for an unsecured loan here.
A business credit card provides you access to the credit line to help you meet up with your expenses. Once you develop your creditworthiness as a borrower, your credit rating will get improved, and you will get more amazing products in the coming future.
During the initial phases of a business, you generally don’t require excessive funds. You are not known about the future, so it is better not to acquire a loan that you are incapable of repaying. So, it is best that you go for this option of unsecured loan for business if you need limited funds to capitalize your company. Some other reasons for selecting business credit card as an option of financing are the quick availability of loan, high flexibility, ability to repay the amount of money borrowed.
So, this was all about unsecured loan for business, it’s workings, why it is required, and its sources. There are three main sources available that is a line of credit, business credit cards, and MCA. All three of them are great choices for small companies, but the best one out of all is MCA as it offers more flexibility in comparison to other options.