There comes a time for most businesses when unexpected expenses will catch you by surprise and you find yourself with insufficient funds to cover the cost.
Best Unsecured Business Loans 2022
In these situations, the most sensible solution is to take out a business loan to help alleviate your finances. There are many different kinds of loans that are now available to businesses, one of which is the unsecured business loan. Before you go out searching for the best unsecured business loans 2022, let us first discuss a few details about these loans that business owners like you should know about.
What Are Unsecured Business Loans?
Unsecured business loans are a type of loan that lenders offer without security. In other words, a borrower does not need to put up any collateral in order to qualify for the loan. Because of this, these loans are very attractive to a lot of business owners since they will not be putting any of their assets at risk.
There is a wide range of variation in terms of loan tenure and loan amount, as this depends on the prerogative of each lender. When you apply for an unsecured business loan, the first things that a lender will take into consideration are your credit score and the income of your business.
What Are the Advantages and Disadvantages of Unsecured Business Loans?
As with any other funding option, unsecured business loans come with both advantages and disadvantages. You need to weigh all of these carefully so that you can make a decision that would be in the best interest of your business.
The main advantage of these loans is that they do not require you to put up collateral. With other business loans, you have to list an asset that the lender can claim in case you do not repay the loan. Thus, there will always be the possibility that you can lose that asset in case you default on the loan. With unsecured business loans, there is no such fear.
Another advantage is that the loan process is very fast and very easy, from the application all the way to the funding. Applying for the loan can even be done online and takes only a few minutes. There are very few document requirements, if any. Oftentimes, approval is completed within a few hours and the funds can be transferred to your account in a matter of a couple of days.
Unsecured business loans also offer a great deal more flexibility in terms of payment schemes and usage of funds. Many lenders allow clients to make monthly payments only on the interest of the loan and only require repayment of the principal amount once the term of the loan ends. Also, the funds available through an unsecured business loan can be used for whatever purpose the borrower requires.
In exchange for having no security on the loans, lenders make up for it in some other ways, like a high interest rate. This is one of the first disadvantages for the borrowers. Even the best unsecured business loans 2022 has to offer will still have considerably higher interest rates secured business loans. Looking at the big picture, this means you will be paying a lot more in repayments than if you borrow the same amount with a secured loan. There are still a few lenders out there that will charge interest of lower than 10% but they can be hard to find if you don’t know exactly where to look.
Another disadvantage is that it will be very difficult to qualify if you have a poor credit score. Lenders will be looking at your ability to make payments and a low score is an indication that you might not be capable. In addition, they will also look at your annual revenue, your cash flow projections, and your financial statements. You need to do considerably well on all these points in order to have a chance of qualifying for an unsecured business loan.
Finally, although you can borrow sizable amounts of money with unsecured loans, the average loan amount is lower than what you can borrow with a secured loan. This only makes sense because you are not giving any collateral, so lenders are not as willing to risk huge amounts. Because of this, unsecured loans might not be the best solution to cover massive expenses like business expansion, equipment purchase, and so on.
What Are the Different Types of Unsecured Business Loans?
If you have determined that taking out an unsecured business loan is the best course of action, you should know about the different types available. It is vital that you understand the features of each of these loans so that you can make the most viable decision for your business.
Business Credit Card
A business credit card is very similar in principle to a personal credit card. You can use the card to pay for any business expense provided that it does not go over the credit limit. Each time you make a partial repayment, your credit balance will be adjusted accordingly. In order to get approved for a business credit card, you need a decent credit rating.
Working Capital Finance
This loan is ideal for businesses that have peak and off-peak seasons. During the off-peak months when you don’t have much revenue coming in, working capital finance can help tide you over.
Short-Term Cash Flow Loan
These are best for covering unexpected expenses. Perhaps one of your equipment breaks down or needs to be replaced, or you might come across a rare inventory-building opportunity that would be a shame to pass up on. Short-term cash flow loans usually need to be repaid completely within 2 years or less.
Merchant Cash Advance
With a merchant cash advance, you can get cash upfront from a lender, which you will eventually repay with future sales from your business. A predetermined percentage of all your future credit card sales will be automatically deducted and transferred to the lender, until the entire amount of the merchant cash advance is fully paid.
Basic Qualifications for Unsecured Business Loans
The exact set of requirements will vary from lender to lender but most of them will look for the following qualifications in applicants for unsecured business loans.
Since lenders have no security in the form of collateral, they will need some kind of assurance that you are able to pay the loan. This is why they will look for a good credit score. You can be confident of getting approved if your credit score is at least 700, which is really pretty good. But most lenders will be willing to lend money to businesses with credit scores of at least 600, provided that they can show decent business history.
The track record of your business quite accurately reflects your ability to pay future loans. A potential lender will therefore analyze your business credit history to check if it is up to their standards. There is no need to worry if you have not been in business for a long time because most lenders only need your history a year prior to your application.
The higher your sales, the more likely that your application for an unsecured business loan will be accepted. Also, businesses that have a really good annual revenue might also qualify for lower interest rates.
Where Can I Find the Best Unsecured Business Loans 2022?
You’ve already seen the pros and cons of unsecured business loans, and how each specific loan program varies from another. Now you are ready to go searching for the right loan offer that will help your financial situation. Traditionally, one would approach a bank or a credit union to apply for unsecured business loans. But these days, there are plenty of alternative lenders and online lenders that offer similar unsecured loan products.
In general, the best unsecured business loans 2022 has for you are those that give you the fastest access to funds, have the lowest interest rates, and have the least requirements. But then, lenders of unsecured business loans are all over the place so it can be quite difficult to make a clear comparison of what each loan plan offers. This is where Booster Financial can be of great help.
Locate the Best Lender for Your Business Needs
Our financial specialists here at Booster Financial can give you an in-depth guide on where to look, how to compare the different offerings, help you with the application process, and so on. But even better, we can do the search for you. Just give us some fundamental information about your business and the loan that you need, and we will connect you with the most reputable lenders that can meet your requirements.
With our help, you don’t need to go through the hassle of comparing numerous loan programs, comparing interest rates, repayment schedules and requirements. We can do all of that for you, and the only thing for you to do is make a final pick from the list of qualified lenders that we will present to you.
FAQs about Unsecured Business Loans
As a business owner, you might still have a few questions in your mind about unsecured business loans. Some of them might be included in these frequently asked questions by other business owners. Read on to find out the answers.
What is an unsecured business loan?
An unsecured business loan is a type of loan that does not require the borrower to put up an asset or collateral that the lender can claim should the client default on the loan. The most common example of an unsecured business loan would be a business line of credit.
What are the advantages of unsecured business loans?
The primary advantage of unsecured business loans is that they will not require you to submit any of your assets as collateral. The approval and funding processes are also much faster with these types of loans, with the borrower usually getting the funds in as little as 2 days after submitting the application.
What are the disadvantages of unsecured business loans?
If you default on an unsecured business loan, your credit score will take a huge hit. The lender might not claim any of your assets because there is no collateral but your greatly diminished credit score will make it very difficult for you to qualify for low-interest loans in the future.
Where can I get the best unsecured business loans 2022?
Plenty of banks and other traditional lending companies offer different kinds of unsecured business loans these days. You just need to find one with a credible reputation and that offers the most agreeable terms for your business.
What are the requirements for applying for an unsecured business loan?
In addition to the filled out application form that you can get from the lender, you will usually also need to provide a number of financial documents. This includes proof of business operations for at least 3 years, and your bank statements for the last 6 months to 2 years. Many lenders will also require a certain minimum credit score for you to qualify for the loan.
What is the usual interest rate on unsecured business loans?
The interest rate can vary widely depending on the amount of the loan, the terms dictated by the lender, the borrower’s risk factor, and so on. Based on current rates, it can be anywhere between 4.8% and 51%.
Is it safe to take out an unsecured business loan?
An unsecured business loan is safe in the sense that it does not require you to put up collateral for your borrowed funds. However, there will be dire consequences if you don’t repay the loan according to the terms agreed upon. Specifically, your credit score will take a lot of damage.
There are some situations where the best unsecured business loans 2022 can definitely come to the rescue, like if you find yourself facing unexpected expenses and do not have sufficient funds on hand. But there are also cases where other forms of funding might be more appropriate. Here at Booster Financial, our specialists can help you figure out the best course of action in these situations. We can also link you up with the best lenders that are sure to meet your financial needs and help keep your business stay on the road to success.
Understand Your Options
Find out more about the different finance opportunities available in your area and get funded today!