Unsecured business loans are the most common way today’s entrepreneurs gain access to funds they temporarily need to make ends meet. These loans are often affordable and easy to apply for, and many business owners can qualify for them almost instantly. Yet if you’re unfamiliar with the no collateral business loans, you might not understand how they work. This guide will bring you up to speed regarding what you need to know.
What Are Unsecured Business Loans?
Unsecured loans are financial arrangements that aren’t backed by any kind of collateral. This type of loan gives a small business owner the ability to access funds based on their individual reputation as a borrower, rather than on the value of their personal property. In general, unsecured loans tend to be moderately more expensive than traditional secured business loans, but the funds could arrive in your account as quickly as the same day.
What Is a Personal Guarantee?
While lenders of unsecured loans don’t ask for any up-front collateral in exchange for funds, they can require borrowers to agree to what’s known as a personal guarantee. But exactly what does that phrase mean in this context?
When a lender requires a personal guarantee, that means they reserve the right to seize your personal assets if your business defaults on the loan. It’s important to read the fine print on any agreement involving a personal guarantee because if your business enters bankruptcy, you could lose a lot more than you bargained for.
Pros and Cons of Unsecured Business Loans
Although fast, unsecured business loans can be the perfect solution for some entrepreneurs, there are potential downsides to this arrangement as well. To help you gain a more well-rounded perspective, here’s a quick look at some of the most significant pros and cons of unsecured loans.
- Painless Process: Unsecured loans take only minutes to apply for.
- Speedy Deposits: Business funding can be in your account as soon as the same day.
- More Money: Unsecured loans can be for greater amounts than secured loans.
- Fewer Spending Restrictions: Enjoy increased flexibility in terms of what you buy.
- Possessions Aren’t at Risk: No collateral means you keep your stuff if you default.
- Higher Interest: Unsecured loans are often more expensive than secured ones.
- Personal Guarantees: Loans that require these can spell bad news if you default.
- Shorter Terms: Secured loans and lines of credit usually have longer repayment terms.
- Challenging for Bad Credit: A very low credit score could prevent you from qualifying.
- More Frequent Payments: Some lenders may require weekly or biweekly payments.
Unsecured Business Loans with No Personal Guarantee - Good & Bad Credit
Here’s a look at three popular lenders that issue unsecured business loans without asking for personal guarantees.