Now that you have decided to start your own business instead of working for someone else, are you seeking a loan or options to secure one? Businesses require you to take risky steps and make investments too. While you may not have enough investments and sources in the beginning, you may search for some loans. When it comes to loans, you have two common options; secured and unsecured loans. You can choose from any of the two options, but most people opt for unsecured loans because they do not have to form collateral for the loan agreement.
Secured Loans are the ones where you would have to put down something as collateral. This will permit the borrower to have security as they can also sell the property you have put down in case; you are unable to repay the amount of loan. On the contrary, unsecured loans do not require you to put down anything as collateral. This is why unsecured loans seem really attractive to the borrowers. But these are really risky for the lenders.
Sometimes, these unsecured loans are called as signature loans as these loans are only given to the borrowers on the basis of their signature, especially on the basis of their credit history. But these loans can be both, a blessing and a curse for you. Before you take these loans for your small business or other needs, ensure to look through the pros and cons for these loans.
Pros of Unsecured Loans
Higher Loan Amounts
In addition to not putting down anything as collateral, one of the main benefits for borrowers is that you get higher loan amounts. Unlike secured loans, they are limited to the property you provide to them and you are given a loan on the basis of the value of the property you have mortgaged. Since there is nothing limited, consequently, the amounts provided can be really high.
Additionally, the amount is also funded to the borrowers faster. In addition to this, unsecured loans also do not have any appraisal step, which makes funding faster. It is also very easy to obtain and can be given to the borrower as early as within 72 hours. Moreover, what can be more attractive than having lesser paperwork? Yes, even with a higher loan amount, you don’t need much documentation.
How about getting the cash on hand whenever you need it? How great would that be! Also, this cash can be in your pockets without putting down any collateral. These unsecured loans offer almost unlimited flexibility for your business. Additionally, you can also use that extra money for your business investments or growing your business. Moreover, you can also use that extra line of credit for your accounts receivables, covering the payrolls, or making improvements to your property. Helping you with all your problems, additional cash and money can help you grow your business in every way possible.
Better Relationship with Lender
When you take loans from a lender, you tend to form a good relationship with them too. Also, wouldn’t you love to have a lender by your side? Of course you would; after all, they can lend you a helping hand whenever you need money. They will always be by your side whenever you need money. Additionally, it is necessary to build a solid relationship with your lender so that it becomes easier for you to obtain finances in the long haul.
Cons of Unsecured Loans
The best part about unsecured loans is that they do not require any collateral, i.e. your business or your personal assets. But the worst part is that they are still a liability and you have to pay them. You do have to make payments every month without failing. Additionally, when you do not keep any collateral to pay back your loan, unlike secured loans, your lender will always be on your head, asking for you to make payments. Also, they will always be after you, even if you are only a day late in making payments. There is no chance to lag behind on your payments.
You and Your Business’ Name
Just like you can build a good reputation with the lender, you can even destroy your and your business’ name if you mishandle the loans. A strong reputation with your lender can help you in many ways, but a bad reputation with them can really be harmful to you and your business. When the bank or lender shows faith in you and you become the disloyal borrower, you will find it really very difficult to obtain finances in the future. What if your lender decides a strategy to bring disgrace to your business? Yes, it can happen. Also, there are possibilities that the lender can even put you in a scenario where would not be able to obtain finances from some other lending institutes too.
There is no doubt that the unsecured loans are provided to you quickly without putting down anything as collateral. Since these loans are only provided to the borrowers on the basis of trust, these unsecured loans come with an additional price tag, i.e. higher interest. The higher amount of loan you require, the greater the interest will be. In order to mitigate the risk, the lender of the unsecured loans charge high interest rates from you.
As you can see, unsecured loans can come with several pros and cons. They can be beneficial as well as detrimental for you too; it all depends on the type of businesses. It may be a viable option for your business perhaps.
If you are looking for a long-term loan for your business, you can choose from a variety of secured and unsecured loans. But before you choose one, ensure to compare them first at Quiddi Compare. We hope you make a wise decision after comparing the interest rates and credibility of the lender. Good luck!