Whenever businesses are posed with challenges like cash flow, purchasing new equipment, hiring extra workforce, buying inventory, etc., they hunt for financing options. Because businessmen are aware of the fact that if any of these issues persist for a long duration, their business can come crashing down. Undoubtedly, there are many alternatives that can save the day for business owners but perhaps nothing can be more effective than no security business loans. A survey reveals that about 50 percent of the startups totally collapse in their first five years of operations.
Given this dominant element of risk, lenders have set rigid criteria for startup owners. It should not come as a surprise that only a small proportion of startups qualify for the loans. That’s where unsecured business loans differ from traditional loans.
Here is how a startup can benefit by obtaining an unsecured loan:
1- Improves credit rating
Credit history is the blueprint of your company’s overall performance. It is the single most important factor that lenders would drill down before approving your loan application. If your company’s credit score is poor, you will have a hard time to get a loan. And even if somehow you get qualified, the terms and conditions of the loan can prove to be tough to meet in the long run.
An unsecured loan can play a critical role to improve your credit rating. To a large extent, unsecured loans are short-term by nature. You can pay them off within the duration of a few months, which will eventually perk up your credit rating. Once you have a solid credit score, lenders will consider it less risky to sanction you the required amount. You will be rewarded with cheaper rates as well.
Moreover, a robust credit score means the suppliers will be lined up to sell out their inventory to you. For example, if you can’t pay for the inventory then and there for whatever reason, considering your good credit history, the suppliers will even allow you to purchase on credit. It will ensure that your business never goes out of stock.
2- Freedom of spending money
It is customary to most of the traditional lenders that they sanction the funds only to be on a specific need. In other words, you will have to come up with a single purpose where you will utilize the borrowed amount. There is no way you can breach that tight line drawn by your lender. More often than not, business owners have a hard time making the most of these types of loans because they feel somewhat caged.
However, an unsecured loan does not pre-condition you to drain the money on just one agenda. As a borrower, you have the complete authority to spend the cash in whatever way you wish to. Unsecured loans are the best alternative for businesses that require a proper cover-up for their multiple problems.
3- No requirement of collateral
Typically, startups have a humble beginning. Even the startups that turned into multinationals were also started with limited resources. Just like all the other businesses, when a startup goes through an expansion phase, they need an extra bulk of money.
This is where an unsecured loan can come to your rescue. Because borrowers are not required to put any of their assets as collateral. So even if you default on the loan, the lender can’t legally seize your house or any office-entity. It effectively means that you will not have to start your rebuilding process right from scratch. As long as you hold on to the equipment, inventory, real estate, etc, there is always an outside chance to make a strong comeback in your business. Oftentimes, a startup needs nothing more than a few solid projects to get back onto the track.
To top it off, most of the non-collateral lenders don’t even ask for a personal guarantee. Meaning, you are free from personally being liable to pay off the borrowed amount in case of default.
4- Fast approval
When a bank makes it mandatory for borrowers to put something as collateral, the loan approval becomes time-consuming. The reason being, lenders have to inspect your collateral properly before accepting it as a worthy asset.
The market evaluation by the professionals takes several days and, as a result, you will have to keep on waiting. But sometimes business hardships reach to the point where you can’t afford to waste any time. Quite literally, the speedy disbursement of the loan becomes a matter of survival. Since an unsecured loan does not deem it necessary for the borrowers to keep a valuable asset as collateral, the approval time drastically comes down.
In addition to that, unsecured loans take a lot of paperwork out of the equation. Rest assured, you will have to undertake the minimum heel-dragging to prepare your documents. This aspect also chips in when it comes to fast approval because more documentation invites deeper investigation.
5- Flexible repayment terms
The institutions responsible for sanctioning unsecured loans know that all the small businesses don’t have the exact similar cash flow. Depending on the niche of a business and seasonal months, the cash flow varies. This is precisely why lenders offer flexible repayment terms.
Unlike other lending options where borrowers are usually slotted the one-size-fits-all repayment period and amount, unsecured loans are much more flexible. So there is no question of your cash flow ever being affected by monthly loan installments.
What’s more, the lenders can even increase or decrease the equated monthly installments depending on the current performance of your business.
Conclusion
Unsecured loans are designed by keeping businesses in mind. That’s exactly what they contain every feature that can offer some breathing space to the businesses –, especially small ones. Because big businesses can bear the financial wear and tear for some time but small businesses are quite fragile in the case. To sum up, an unsecured loan covers a wide range of problems so this should be your primary option to nib in the bud of financial suffocation.
You must be logged in to post a comment.