Unsecured Commercial Loans for Expanding Your Small Business

Under the right circumstances, using unsecured commercial loans could be a beneficial way to expand your small business. Many business owners do not consider alternative means of expansion and never grow as a result of lack of capital. Most business owners look at traditional lending where a loan is secured with collateral. The business loan can be secured by the property where the business owner resides, or by another piece of property. However, with unsecured commercial loans, the process works a little bit differently. Here are some things to consider about how unsecured commercial loans work and how they can help you expand.

How Unsecured Loans Work

With an unsecured business loan, you can get the money you need without tying up any of your assets. When a lender offers you an unsecured loan, they do not require any form of collateral for the loan in return. This means that you do not have to risk any of your assets as a result. If you default on the loan, nothing will be repossessed and all of your assets can remain intact. They can still come after you for the money, but nothing will be directly tied to the loan. In order to collect their money upon default, they would have to take you to court and get a judgment against you. With a judgment, they could eventually tie some of your assets to the debt. However, initially there is nothing tied directly to the loan.

What to Expect

Getting an unsecured commercial loan most likely sounds very enticing as a business owner. You do not have to risk any of your assets, but you still get the money that you need. Unfortunately, it is not that easy to get an unsecured loan. In order to get this type of loan, you typically have to have a good credit history. They will check out your business credit history and possibly your personal credit score. An unsecured business loan represents a large risk for them and as a result, they only work with the best borrowers in the market. 

In addition to the more strict approval process, you should also expect to pay higher interest rates. Unsecured loan interest rates are always going to be higher than what you can get for a secured loan. When an asset is tied to the loan, the lender knows that the likelihood of losing their money completely is low. If you do not pay the loan, they can simply take the asset and at least salvage their investment. If you get an unsecured loan, you are going to be paying a premium for it. Anytime a lender takes on more risk, they are going to want to be compensated for that risk. This means that they are going to ask for and receive a higher interest rate from the market for unsecured loans. Unsecured loans can be beneficial to your cause, but you have to know how to use them properly. 

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