unsecured funding is a popular way to finance a business, because unlike loans guaranteed that there is no need to meet guarantees. This has some important implications, in particular for small businesses – Let’s take a look at some of the ways in small companies can obtain financing without guarantee. (LoansOne)
While they may be more difficult to obtain, unsecured business loans are potentially the most useful type of financing without guarantee for small businesses. Apart from not needing the physical safety, the most obvious benefits are that they are fast to install and you can borrow more than their assets are worth (if any) to obtain a significant lump sum to its growth plans.
Because there are no assets involved, the risk is higher for the lender, so the costs are higher than the guaranteed equivalents. However, this is often a moot point for smaller businesses that are less likely to have assets in the first place – in which case, unsecured funding may be the only available option.
unsecured small business loans are based on the strength of its business, and lenders look closely at their margins of profit and turnover to determine affordability. Operations history is also important, since it indicates if it is growing steadily, stagnant, or declining. To obtain an unsecured loan, will have to be consistent with that income, and if things are slow and that it will be difficult to convince a lender to finance your business without security. (LoansOne)
common feature of the director loansOne of unsecured business loans and personal guarantees is a greater emphasis on individual directors involved. Often, they will be asked the directors to give a personal guarantee – which means that if the company does not pay, the burden of repayment corresponds to the directors who have offered one. Counterintuitively, this means that a non-guaranteed loan is often indirectly ‘secured’ on personal property such as capital of the House Director. While this thought is an unpleasant experience for some, it is important to remember that personal guarantees are both a declaration of commitment as anything else – the company you want to demonstrate your confidence in your business by having some skin in the same game. In vein, some lenders offer loans ‘director’, which technically is a personal loan, but to be used only for commercial purposes.