The term “unsecured” gives off a negative vibe. Add it to the term “loan” and you might come to think than an unsecured business loan is a bad thing. It can be bad, for sure. Any loan could go south sometimes before we even know it.
An unsecured loan has no collateral backing it, typically meaning terms are not great and the interest rate is high. This can make it hard to pay back, and without any collateral behind it there are a lot of unsecured loans that are not paid, generally speaking. This is often the case with borrowers that had no collateral so they had no choice but to take out an unsecured business loan. Sometimes however, it can be no so bad to choose an unsecured loan even if a secured loan is an option.
No Need to Tie Up Assets
If you don’t have to, you really do not have to tie up your assets as collateral with a traditional loan. If you can get a good, although higher than collateralized, rate and you can repay quickly, you may find it beneficial to keep your assets free.
Keep Debt Low
Strategically, you may want to choose an unsecured business loan to help keep your total debt lower. Unsecured loans have a lower cap as a risk mitigation factor. This means you would not be allowed to borrow as much as you would be allowed to borrow if collateral was involved, and could be a strategic move to help you keep your debt low if you do not need a large amount of financing.
Encouragement to Pay Off Faster
If you are paying a higher interest rate, it could encourage you to pay off the loan faster. If some extra funds become available, a higher rate makes throwing those funds toward your loan much more appealing, as paying it off faster means less paid in interest.
Of course the determination of whether an unsecured loan makes sense is ultimately up to the borrower if there are other options. Whatever you decide, Biz2Credit can make it easier through a network with many different types of lenders that offer a variety of financing options, and we will find the one that will be best for you. Visit Biz2Credit today to find out more.