A type of credit backed and issued by the debtor company’s creditworthiness rather than by a type of collateral is referred to as unsecured business loans. This is as simple as it gets. No more complications and unnecessary whatnots. However, a good businessman always wants to get into the core of things. The surface is never enough. So if you are thinking about taking on an unsecured loan for your company, you’ve come to the right place. Allow us to introduce them to you a little more.
For most cases, getting a loan from any provider will always require a type of collateral. Oftentimes, this is a real estate property but can be any other valuable asset no less. These are what you call secured business loans (SBL). Financial institutions will hold on to such collateral as a form of security or guarantee for the risks they take. Should the borrower default or become delinquent, the property is seized and foreclosed.
With unsecured business loans (UBL), such collateral is not required as already mentioned earlier. Creditworthiness is used instead. This poses bigger risks to the financial institutions which is why they may impose stricter requirements to borrowing companies. For instance, the interest rates could be higher. This is not always the case and will still vary depending on the lender and their terms. Moreover, one of the necessities of the application process is the company’s credit score and history to which their creditworthiness will be gauged.
An establishment that has a good or better yet a sterling credit score is more likely to get a quick approval and release of funds. These are companies whose credit history show that they have been good debtors to their creditors with payments sent on time and no obligations forsaken or avoided.
How about those that don’t have a ravishing record then? Are they barred from the service? Not exactly, although their application may not come through as quick. They can still garner an approval but don’t get your chances quite as high. Be realistic too. As entrepreneurs, you have to be.
Now, the main advantage of unsecured business loans is simple: the absence of collateral. With this, companies can rest assure that a property foreclosure is not a threat even if signs show that the organization can fully and timely comply with its obligations. Furthermore, in the event of an insolvency, unsecured loans are more likely to be written off than their secured counterparts.