In the majority of cases, businesses are in need of extra funds in the form of a loan in order for them to grow and expand. That is where business loans come in handy and offer a solution. Business loans are made for commercial organizations rather than individuals. They can give you anywhere between £1,000 and £3 million. Also, there are two main types of business loans you can choose from:
source:credibly.com
- Unsecured business loan
- Secured business loan
The main difference between the two is the fact that for the unsecured loan you are not required to provide any assets as security, while the secured one asks of you to provide some assets so that the lender can make sure you’ll pay off your debt. propertyfinancepartners.com describes unsecured lending as a more flexible option and a great way to get the necessary funds for business growth, new employees, equipment, and marketing.
There are also different specialized types of business loans, depending on the sector in which your business operates.
In the UK, the number of options of unsecured loans has been on the rise during the last few years meaning it’s pretty easy to find an option that suits your needs.
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Advantages and disadvantages of unsecured loans
At firsts it sounds great: no assets needed, there’s nothing to lose. Of course, it’s not that simple. This means less risk for you, but more risk for the lender. For that reason, you will be paying more for borrowing and there are limits on the amount of money you can borrow. Also, these amounts are lower than the ones that come with secured loans. Furthermore, the director or the owner of the business will be obligated to repay the debt if the company fails to do so in time. A written promise from the owner guaranteeing to repay is necessary. With secured loans, you’re providing certain assets that the lender can keep if you don’t make the payments in time. That means less risk for the lender, more risk for you, but secured loans also come with lower interest rates.
Compared to secured loans, the time you have to repay the unsecured loan is shorter and the monthly payments are higher. Unsecured business loans are typically provided by banks, but some alternative lenders, finance houses, or peer-to-peer providers are sometimes offering unsecured loans.
source:capify.com
As no assets are required, unsecured loans represent a good option for young, new businesses that don’t own a lot of assets yet and are looking for a smaller amount of funds in order to kickstart their business. Of course, this type of loan is also, even though less frequently, used by bigger, older businesses as well. The only thing to keep in mind when deciding to get a loan is to commit to a reasonable amount of money. In the case of poor planning or execution combined with a poor financial state of the business, loans can often do more harm than good.
source:capify.com
In conclusion, unsecured business loans are often the best, and possibly the only option, for small businesses, but they do have their disadvantages that should be taken into serious consideration.
