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What Are The Benefits Of Unsecured Loans?

  • January 28, 2020

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benefits of unsecured loans

A lot of entrepreneurs resort to business loans to help with their additional financial needs. Even large companies who earn big profits often need some extra cash for expanding operations, added inventory lists and other business payments that are essential for their business. When businesses are in need of additional financial help, they often secure a loan with collateral.

The collateral used is then tied to the term loan. No matter how small the business is, when the owner defaults on the loan, they are required to hand over the collateral as a form of payment. Basically, the collateral is used as a security blanket for the lender.

Related: Useful Ways To Fund Your New Business Startup

Do not Require Collateral

Another option that can be used is an unsecured business loan. Unlike other loans, unsecured business loans do not require any collateral, which makes it less risky and less hassle for business owners. Instead of having collateral, unsecured loans consider other options such as market plans and business opportunities when qualifying.

They would look closely at credit scores, banking statements, cash flow etc., even startup companies that have no collateral, can meet the requirements for this type of business loan but they will require a legal document from their applicants, as a personal guarantee to pay back the loan.

Shorter Application Process

The shorter application process makes it easy for business owners to get their much-needed loan. Business owners know how loan applications can be long and intensive. Different financial institutions make sure that they are lending their money to business owners who can pay their debts on time and in full.

As such, they require a thorough and rigid process. Approval of secured business loans might take up to 10 days, unlike unsecured business loans that often results in funds being released as fast as 24 hours. The fast transaction makes it more convenient for business owners who are in dire need of money and it is also stress-free.

What Else Should You Know About Unsecured Loans?

Some lending companies could take control over the properties that business owners have, especially if the debt cannot be paid in full. But in unsecured loans, these properties are protected, and the lending company would have to file for a case to seize any property to recoup an investment. Also, if the business files for bankruptcy, the unsecured loan may be discharged. With secured business loans, the collateral knotted to the loan is a means of paying for the loan and the case may not be likely to be discharged even when the business has already filed for bankruptcy.

Although it might sound appealing, loan applicants have to take note that some interest rates may be higher or lower than other funding choices, depending on the loan terms and the lender. Business owners must be aware of alternative lenders, such as payday lenders, and cash advance.

Conclusion

Misleading at times, these lending companies let their applicants take more significant risks through automatic withdrawal from the applicant’s current account, which results in excessive borrowing and repayment charges cycle. There are different risks in getting a loan. It pays to have a clear agreement and full understanding of the terms before proceeding in securing a loan.

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