When it comes to business loans, there are two types to choose from: secured loans and unsecured loans. Secured business loans require collateral, such as business equipment or property. If a business owner takes out a collateralized business loan and fails to repay it, the lender can legally claim the collateral to recover its financial loss.
On the other hand, unsecured loans do not require collateral, making it a less risky option for business owners. This Huddle Business Capital blog article features the information you need to know about unsecured business loans.
What is an unsecured business loan?
As mentioned above, an unsecured business loan does not require you to provide collateral, such as assets or property, as security. This type of loan is based on your creditworthiness, time in business, annual revenue, and ability to repay the loan. Other criteria might be considered during the application review process depending on the lender you work with.
Because collateral is not needed, an unsecured loan can be easier to obtain. However, you are still personally liable for the loan and must repay it on time to avoid potential legal consequences.
Benefits of unsecured business loans.
Not having to pledge collateral is just one of several key benefits of unsecured business loans. These loans also offer an easier application process, quicker credit decisions, and faster access to funds. Plus, you can use an unsecured loan for many business needs, including daily operating expenses, employee payroll, inventory, office supplies, rent, utilities, and marketing.
Unsecured loans have smaller borrowing amounts and shorter repayment terms than conventional loans. That means you can pay off an unsecured loan quickly, which can help improve your credit score, providing you make your loan payments on time.
Less stringent credit score requirements.
The credit score requirements for unsecured business loans are usually less stringent than those for conventional loans. This is welcome news if your company is new and lacks a robust credit profile or you've been in business for many years but have a less-than-stellar credit score. Many nonbank lenders can extend unsecured loans to business owners who don't meet the borrowing criteria of banks or credit unions.
Huddle Business Capital, for example, offers unsecured working capital loans with simple requirements. We consider borrowers with a 550+ FICO score who have been in business for at least three months and have $15,000 or more in monthly sales revenue. As a result, we have been able to extend loans to small business owners in many industries nationwide, many of whom were told "no" by their bank.
How to get an unsecured loan for your business.
Regardless of the lender you select, the application process for an unsecured loan is relatively straightforward. Before applying, you must contact your lender to find out what documentation, such as financial statements and tax returns, needs to accompany your loan application. Doing so can save time, ensure your application is complete, and position your business to secure a loan successfully.
It is important to remember the significant role that your credit score plays in the loan approval process. Although obtaining an unsecured loan with an average credit score is possible, your chances of being approved increase significantly with a higher score. You can boost your credit score by paying your company's bills on time and reducing or consolidating debt. Additionally, check your company's credit report with the three commercial credit bureaus. If you see any errors, inconsistencies, or fraudulent activity, contact the bureaus and let them know.
What to look for in a business lender.
When it comes time to apply for an unsecured business loan, you have many options. These include national and regional banks, credit unions, and online (nonbank or alternative) lenders. If you're seeking a quick and hassle-free process from start to finish, consider working with a nonbank business lender like Huddle Business Capital.
We offer unsecured working capital loans and other funding solutions to businesses outside the traditional banking system. We have more flexible lending criteria than banks and other lenders, making us a popular teammate for small businesses seeking access to unsecured loans without having to deal with extensive paperwork and challenging borrowing requirements.
Disclaimer.
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind.
