In any business, be it small or big, at some stage in the business, it is pertinent to take some amount of risk which you aim at improving the business returns. However, every business owner is advised only to take a risk when they have got a substantial amount of financial backup. Bas a business owner, you ought to be aware that arranging finances on your own at a certain point of time in your business can be a difficult proposition. No doubt that in the absence of finances, you as a business owner will not be able to take care of the expenses, and invariably you have to rely on loans. When in this state, you can consider applying for unsecured business loans.
What are Unsecured Business Loans?
In definition, an unsecured small business loan is a form of business financing that doesn’t require any collateral to qualify for the loan. You can apply for these loans without necessarily pledging any collateral. Without involving any collateral, this implies that your assets are risk-free. Additionally, the loans provide you with all the benefits required to up-scale your business to a profitable venture. Unsecured business loans are so good that even bad credit borrowers too can apply for the loans, which shows that these loans are flexible. The money gotten from this loan can be used to set up or start a personal business or refinance it or to expand the existing business. The amount derived under these loans can also be used for purchasing furniture, raw materials, renting office premises, acquiring new plots, clearing previous debts paying wages, etc
since we now know what an unsecured business loan is, let’s take a look at its various types, and find out the one that will easier to achieve unsecured loan to get that business started.
Types of unsecured business loans
Even though an unsecured loan for the business is not being backed by collateral, it doesn’t stop many lenders to require a personal guarantee before approving the loan. However, a personal guarantee here is a promise made by an individual to accept responsibility for the business’ debt if it fails to pay. Though there are certain alternative lenders offers revenue-based business loans with no personal guarantee for businesses that meets specific annual revenue requirements. The funding comes through in a matter of days along with repayment timeframes which is much shorter than a traditional business loan.
In getting this loan, a small business owner ability to qualify directly depends on the business’ revenue or his/her credit profile; this is because unsecured business loans will surely have a higher interest rate than gotten from a secured loan. As a small business owner, there are different unsecured business loan options to choose from. The most popular is the traditional bank loans. However, getting an unsecured business loan from a bank is never easy.
Business cash advance
These are loans based on previous debit and card sales, which is repaid weekly as a percentage of future card sales. A business cash advance is not an overdraft or a business loan. In business cash advance loan risk, cash is advanced to your business based on your eligible card sales and in return for you for selling a portion of your future card takings. Some companies use cash advances to purchase stock and equipment or for repairs or refurbishment. While others use them to fund unexpected costs or to bridge a dip in cash flow. Using this method sure has a lot of advantages over traditional business funding methods, easier approval, such as speed, more flexible fees, and payments that respond to your level of card sales.
This is a loan borrowed via contributions from multiple lenders, who will receive equity in the business along with repayment of their loan. It is a method of raising capital used for startups in the company’s early-stage. Substantively, equity crowdfunding offers the company’s securities to its potential investors in exchange for financing. However, each investor is entitled to a stake in the company proportional according to their investment. It is good to know that Equity crowdfunding is different from other crowdfunding methods such as donation crowdfunding and rewards crowdfunding. Among other types of unsecured business loans, this model provides a more conventional capital-raising.
This is very similar to equity crowdfunding, except that in this, equity is not offered; you instead get a personal guarantee. Debt crowdfunding sometimes is known as loan-based lending or peer-to-peer lending. It is an alternative way businesses can borrow money for startups or other expenses. In essence, it’s not different from the traditional model of applying to a bank for a business loan. The major difference is that the finance is raised via a P2P lending or crowdfunding website, which means that multiple investors contribute the funds. Businesses that have been declined by banks and credit cards loan can use this alternative lending route for loans.
For investors, the attraction can be in the knowledge that they are contributing to the journey of a new product, an idea, or business they believe in.
Again, this is similarly structured to equity crowdfunding except that lenders donate money based on their belief in the business they are funding. Donation-based crowdfunding or Donation crowdfunding is by definition an option to obtain funding from a crowd of donors to finance a project which makes a cause in the context of charity or social sense without expecting the funds to be returned once donated.
In conclusion, the above are types of ways to obtain an unsecured business loan for any business which you decides to venture into. This method 0f loan won’t be easy to acquire, but it is worth trying because the money gotten from it can be spent into the business with peace of mind.