Unsecured business loans - businesses without collateral » BizFly Funding (2024)

Too often, small businesses that fail don’t fail because of a lack of innovation, good products, or good services, but a lack of funding for their operations.

While there are many different kinds of small business funding product available, a simple small business loan remains one of the most popular choices. When it comes to small business loans, however, they are not all created equal.

The most common distinction in types of small business loans comes down to whether the loan is a secured business loan or unsecured business loan.

Don’t worry if you’re not familiar with exactly what those terms mean. Business owners have a lot on their plate to juggle, and the intricacies of the finance world are not always high on that list.

Nevertheless, understanding the difference between secured and unsecured small business loans, their respective pros and cons, and how they can be beneficial for your business is important.

After all, as with any business decision, you need all the information and knowledge you can get in order to make an informed choice. So, what’s the best choice for your business: a secured business loan, unsecured business loan, or some other funding product entirely?

Let’s start answering that question by digging into what secured and unsecured business loans mean in the first place.

Put simply, the terms secured and unsecured around a loan or financial product have to do with whether or not collateral is involved.

It’s a common misconception that it has something to do with the security or stability of the loan or lender, which is completely untrue.Rather, the “secured” and “unsecured” adjective describes the loan from the perspective of the lender and the debt.

A secured loan or debt is one that is backed by collateral – repayment is secured, as defaulting on the loan will result in collateral being seized for the lender to be made whole.

Unsecured loans do not require collateral, so the loan or debt is considered unsecured – if the borrower defaults, there is no guarantee that the lender will be made whole.

Of course, that doesn’t mean that unsecured business loans allow you to simply avoid repaying the loan and get away with it – it’s still a financial obligation like any other.

However, it does limit some of the liability for small business owners, especially during uncertain economic times and in rapidly-changing business environments.

As such, unsecured small business loans are often the preferred type of loan for small business owners (we’ll talk about the reasons why in more detail later in this guide).

As with all products and services in the world, there are benefits and tradeoffs associated with the decision between a secured business loan and unsecured business loan.

One isn’t necessarily better than the other or worse than the other. However, there are some key benefits that make unsecured small business loans a more popular and accessible choice for small business customers.

• Secured business loans are considered lower risk for the lender, since they have a guarantee of repayment regardless of what happens to the borrower’s finances. As a result of the decreased risk, these kinds of small business loans often come with somewhat lower interest rates.

  On the flipside, unsecured business loan interest rates tend to be a bit higher (though this varies considerably by lender, as well as based on a variety of borrower-specific factors like credit score, revenue, time in business, and so on).

• Banks are very risk averse, and often tend to only offer secured business loans (if they offer small business funding at all – many don’t).

  Unsecured small business loans are more readily available from private lenders, often from lenders specializing in small business funding.

• Likewise, unsecured business loan requirements and eligibility criteria tend to be more easily met than the secured business loan requirements, even setting aside the matter of collateral.

  This is largely a function of the lenders, with private lenders being far more risk-tolerant and accessible than banks and traditional financial institutions.

• Borrowers who take out a secured business loan will pay less in interest generally-speaking. However, the risk of putting up collateral means that defaulting can be very costly. Because of the way collateral is valued, you often need to put up assets well in excess of the value of the loan.

  Risking property, plant, and equipment 3 to 5 times the value of the loan you are taking out is a considerable risk for many small business owners. With unsecured business loans, you’ll never be on the hook for more than the value of the loan.

It’s this last point we addressed above that often drives the preference for unsecured business loans among many small business owners. Small businesses are risky ventures to begin with, and your odds of success are about even with your odds of failure.

Most people do not want to gamble $300,000 – $500,000 in property, plant, equipment, inventory, or other assets, just to take out a $100,000 loan.

If the worst happens, now you’re out $400,000 – $600,000 rather than just $100,000. It can create serious debt that can spill over into your personal finances and make it impossible to recover from the default.

It certainly is somewhat more costly, on average, to take out an unsecured small business loan, owing to the higher unsecured business loan interest rates.However, a $100,000, 5 year loan at 8% vs. 12% interest only amounts to a difference of less than $12,000 in interest over the life of the loan.

For an extra $12,000, you can avoid risking $300,000 – $500,000 at 50/50 or worse odds. For most small business owners, that math is a no-brainer in favor of an unsecured business loan.

The fact that unsecured small business loans are also easier to access is another compelling factor. Private lenders generally have unsecured business loan requirements that are more easily met for small businesses.

This means unsecured small business loans for bad credit customers, customers who haven’t been in business that long, or who have limited monthly revenue are far more realistic and possible than their secured counterparts.

The combination of more-easily-met requirements, minimally increased interest rates, and radically reducing borrower risk all add up to make unsecured business loans the preferred choice for most small business owners.

In the US, if you’re looking for unsecured small business loans or any other type of small business funding, you should consider applying at BizFly Funding.

BizFly Funding is a private lending firm that only offers small business financing services, with the expertise, knowledge, and experience to help you fund your small business operations.

They offer unsecured business loans, debt consolidation loans, lines of credit, merchant cash advances, and many other financing products.

The unsecured business loan requirements are easy to meet, and for most customers, unsecured business loan interest rates are highly competitive.

To find out more or start the online application, visit https://bizflyfunding.com.