Unsecured loan is the type of loan that is issued and supported only by the borrower's creditworthiness and is not guaranteed or supported by any type of property as collateral security. It is also called a signature loan or a personal loan.
Borrowers generally must have high credit ratings to be approved for certain unsecured loans. Though unsecured loans are without collateral, there are some criteria that are used to assess a borrower's creditworthiness such as character, capacity, capital, properties and conditions.
Because unsecured loans are given without collateral, the lender bears the high risk. As a result, the interest rates for such loans are usually higher.
Unsecured loans include credit cards, student loans and personal loans. And these loans can be revolving or term loans.
The following are some of the reasons why you should consider going for unsecured loans for your business.
1. Flexibility with use
Unlike secured loans that are mostly taken for some specific projects or investments, there are no restrictions as to what you can use unsecured business loans to do. It can be used to attend to any need including bridging the gap in monthly finance deficit, to pay for something urgent or to cover an unexpected cost etc.
2. Quick to process.
One of the reasons why you should consider unsecured business loans is that they are fast to process. The process of application for such loans has been made easy by many lenders who have come up with online loan applications that are easy to fill out and submit.
Processing time for this type of loan is usually very short, sometimes the same day or within 24 hours.
For a small business, time is of essence, secured loans take a long time to process and the delay in securing it may lead to disastrous losses. In such a case, waiting for weeks to get secured loans processed is not ideal. Unsecured loans get approvals faster as there are no assets to be valued. This is ideal when you find yourself in a situation where you need quick cash.
3. Unsecured business loans are less risky
Even though the interest rate for unsecured business loans are higher, there are no risks attached to such loans as they are usually for smaller sums and you don’t need an asset such as a house or car as collateral.
Risking assets for a loan is a bitter pill to swallow for many small business owners. Unsecured business loans are given based on your credit score rating or whether you have someone who is willing to guarantee the loan.