What Are Unsecured Business Loans?

In most instances, it’s rare for a business owner to never need a business loan. Money does make the world go around and financing is a way to reach business goals quicker.

A reserve of cash helps business owners get through a rough patch, fund a project, or provide instant cash for unexpected expenses like repairs. That’s why many entrepreneurs prefer using unsecured business loans and credit cards to invest cash strategically and grow their businesses.

Unsecured Business Loans

These valid financing alternatives don’t require collateral (equipment, cash, vehicles, and other assets) in order for the lender to release funds to the borrower. With two options for unsecured funding available, how do you know which one to choose?

Let’s look briefly at the differences between the two.

Basic Differences between Unsecured Business Loans and Business Credit Cards

As already mentioned, you don’t need to hand over a title to a vehicle or have your bank seize money from an account when applying for an unsecured business loan. Lenders don’t need collateral to approve the lump sum loan because they’re predominantly interested in your creditworthiness.

On the other hand, with a business credit card, you continue to have access to money as long as you make timely payments. You only pay interest on what you’ve actually borrowed compared to the full amount when you take out an unsecured business loan. Business credit cards usually include annual and cash advance fees.

Both types of funding carry higher interest rates than secured loans.

Two Different Business Owners Get Funding

Getting a new big client can be great, but you’ll need money to meet their needs

A web designer’s business skyrocketed ever since he signed a deal with a big company. Now he needs newer computer equipment and software to keep up with their needs.

Business Owners Get Funding

Because he doesn’t want to offer assets to secure a loan and knows the application process is longer when using a traditional lender, he turns to the services of an online lender. They don’t have problems with his lower credit score and don’t require collateral.

Because his business brings in regular, dependable income, he decides to borrow $20,000, which he can use immediately and repay in 48 months at a comfortable monthly payment. By using up-to-date technology, the business owner is able to stay competitive in his field of expertise.

Money is essential to keep your knowledge as a tutor up to date

A second example involves a computer tutor who provides hands-on training to learn how to use popular software programs and better understand digital processes.

She helps individuals and business’s employees set up spreadsheets, databases, or trains them to complete other computer tasks. Frequently, she needs to purchase new updated software to stay up to date. She also takes update courses on teaching and on all the programs she works with.

She decides that a business credit card is her best option to make purchases as needed. By having access to quick cash, she can also buy gas for her vehicle when traveling from one client location to the next.

Furthermore, she can purchase necessary office supplies and track business expenses by having only one card that she never uses for personal expenditures.

What Option Should You Choose?

As you can see by the above examples, sometimes getting an unsecured business loan is a better option than using a business credit card and vice versa. It all depends on your business’s needs

As long as you’re comfortable with your business carrying debt and you can repay what you borrow, these are logical options to consider. Plus, you don’t need to own collateral in order to qualify for financing.

If you’re in a similar situation, you might be considering one of these 2 options, and I’m sure now you see that the advantages of using unsecured funding to grow your business outweigh any disadvantages.

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