Knowing the difference between secured and unsecured business finance can have a huge impact on your wealth and security. Many business owners have fallen into the trap of securing finances with their home as collateral, only to have it repossessed when their company has a bad year. Some people think that putting up your house or car as security is part and parcel of borrowing money but this isn’t actually the case. In this article, we look at the fundamentals of unsecured business finance to help you understand whether it’s right for your situation.
What Is Unsecured Business Finance?
Unsecured business finance is where you borrow money without providing assets as collateral. This is the opposite of secured finance, where you’re required to use assets (such as property) as security. In the latter case, the bank will take your assets if you’re unable to repay what you’ve borrowed. They use them to pay off the outstanding debt and recoup some of the money they have lost. But with unsecured finance, you don’t have to provide this type of security so the lender won’t be able to take your home or other property if you fail to repay what you’ve borrowed (unless they manage to obtain a court order).
Benefits & Drawbacks
There are lots of benefits to using unsecured business finance, including risk reduction, quicker access to funds, and affordability. However, there can also be some hurdles for some types of businesses too so it’s important to have a clear idea of the pros and cons. In this section, we look at the positive and negative aspects in more detail.
One of the biggest benefits of unsecured finance is that it’s available to a wide range of organizations. Unlike other types of business financing, you don’t need to own high-value assets in order to secure it. This means that if you’re not yet in a position where you own a house, commercial premises, or fleet of vehicles, then you can still access the funding. This can be particularly appealing for younger business owners who are operating a financially sound business but haven’t yet built up enough wealth to own large assets. An unsecured business loan can also be perfect for companies that operate online and don’t hold tangible stock or own bricks and mortar premises.
Unsecured loans are a lower risk option for businesses looking to borrow money. Because there aren’t collateral requirements to obtain these types of small business loan, the lender has few options in the way of recourse. This means that your home or business assets are unlikely to be at risk if you fail to meet repayments. For your typical small business owner, this means less stress and fewer sleepless nights worrying about the prospect of losing everything if things go wrong. However, it’s important to note that lenders may be able to obtain a court order to seize your assets if the worst should happen so it’s not 100% without risk.
Traditional lenders often have a complex and time-consuming application process for borrowing money. Part of this is related to the old-fashioned infrastructure that they have in place and legacy processes that haven’t been updated to utilize digital tools. But another reason for delays is the background checks that are required on the assets provided as security. Do you really own the house or car that you’ve put forward as collateral? How much money are they worth and are there any other loans attached to them? It takes time for lenders to research these details before giving you an answer, but with unsecured business finance, they aren’t necessary. There are no assets to check which speeds up the process and allows you to access funds quickly. In fact, at Strategic Capital we can often give you an answer in a matter of hours!
Strong Financial Stability
In order to access unsecured financing options, you’ll need to demonstrate a certain level of business stability. If you’re not providing personal guarantees in the form of assets, then most lenders will want to be completely reassured that you’ll be able to pay back what you borrow. They may require higher credit scores for their unsecured products than they would for secured ones. Depending on the amount that you’re looking to acquire they may want proof of a strong financial history or detailed cash flow predictions. The requirements will vary between lenders but can cause issues for businesses with a poor credit history. The higher level of risk carried by the lender also means that they tend to charge higher interest rates on unsecured products. However, at Strategic Capital we maintain incredibly competitive rates thanks to our digital infrastructure and extensive network. All we usually ask is that you’ve been in business for a minimum of 6 months and are turning over at least $10,000 per month.
Who Is It Right For?
Unsecured business finance is suitable for a wide range of organizations with varied needs. An increasing number of small to medium-sized enterprises are using outside funding to enable growth. Almost a third of businesses fail because they run out of capital so there’s also demand to support the successful conversion of new start-ups to established companies. However, it can be difficult for some of these businesses to meet collateral demands which is where an unsecured term is needed.
Businesses that don’t own any tangible assets such as commercial premises or high-value equipment can benefit from unsecured finance. It’ll allow you to access working capital to pay for business expenses with competitive terms but no security. You’ll often get significantly better interest rates than a business credit card or bank account overdraft.
Business finance can be used for a huge variety of purposes with the end goal of generating more revenue. This includes expanding into larger premises, taking on extra staff to support a new project, or investing in new equipment to improve efficiency and output. The money could be used to fund marketing activities that attract more customers or acquire new stock. There’s a huge range of possible uses, but when taking on any form of loan, it’s crucial to know how you’re going to pay it back. Investing in activities or assets that will generate a return is one of the quickest ways to grow your business and ensure profitability.
Unsecured Business Finance For Your Company
The ability to access funds quickly and lack of assets required make unsecured business finance ideal for most companies. If you run a relatively new business and don’t have property to use as security, then it may be the perfect option. For business owners who don’t want to risk their own assets or lose sleep stressing about it, unsecured finance is a practical solution.
At Strategic Capital, we offer finance for a wide range of loan amounts and business needs. You can have access to the cash in as little as 24 hours and start putting it to good use almost immediately. Whether you’re looking for a short-term loan, merchant cash advance, or line of credit, we offer products to support your business.
How We Can Help
Strategic Capital provides business finance to a wide range of organizations across the USA. Whether it’s to pay for your everyday costs, emergency repairs to equipment, or investing in expansion, we offer small business financing solutions without the hassle of traditional banks. Best of all, you’ll benefit from competitive terms and a simple application process, so you’ll soon have more money to reinvest into your business.
Transparency, innovation, and expertise are the driving factors behind everything we do. With a talented team of advisors, a plethora of funding partners, and the best technology available – we go above and beyond to help our clients receive their capital rapidly with the industry’s most competitive repayment options and interest rates. We want to break speed records, not bank accounts.
Our clients receive cash in advance of payments from their customers, typically within 30, 60 or 90 days, providing needed capital to meet operational overhead. Unlike other types of financing, AR financing focuses on your sales, not your balance sheet. As sales increase, more working capital becomes available to meet the demands of operating your business. AR financing provides a continuous, long-term source of funds on a short-term basis. Learn more about our business finance and lending services here.
– Bradley Keys