No Assets, No Problem
- Some business owners may not have personal or business assets to offer as collateral
- Get the cash your business needs, even if you don’t have valuable assets
A type of business financing where the borrower is not obligated to pledge collateral including real estate, inventory, or equipment is termed as an unsecured business loan. The borrower’s credit worthiness is the only parameter considered to issue the loan. Unsecured business loans are also called personal loans or signature loans.
According to the US Small Business Administration, around 73% of small businesses depend on outside financing. Estimates also suggest that small businesses borrowed $600 million from banks and they get nearly the same amount ($593 million) from private investors and finance companies. Most of these loans are unsecured loans that completely depend on the credit of the borrower and the lender’s faith in them. This kind of lending can be greatly helpful to business owners but there are some dangers associated with exploring beyond the boundaries set by product design. In this article, we break down the working of unsecured loans and explain why they could be great for your business if handled in the right way.
An unsecured loan allows you to gather capital without having to submit any collateral and can give a major boost to the growth of your business. Whether you want new equipment or want to expand your business, an extra source of capital can make these changes possible with a lot more ease.
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Securing the funds your business needs in order to continue running smoothly is easy with financing options from Building Block Capital. Our application process is easy, fast, and secure. In only a couple of minutes, you can apply for a customized loan for your small business.
After you finish applying, one of our loan specialists will contact you so we can learn a little more about you and your business. Your loan specialist will help answer any questions you have about the loan process and help you determine which loan is the right fit for you and your business. Our high approval rates and quick decisions make it easy for you to get back to running your business.
Building Block Capital offers a personalized approach and will help guide you and answer any questions you may have with our expert loan specialists. Our funding process is made easy in order to get you the money you need quickly to help cover your business expenses.
We have experience helping a wide range of businesses secure the right financing solution
Over $250 million in funding to more than 25,000 businesses nationwide
Financing solutions and payment options tailored to your specific needs
Fill out our quick online application with a decision in as little as 24 hours
Even if you’ve been turned down by banks or others, there’s still a great chance for us to get you the business capital you need
No collateral requirements, with easy, automatic payments
A large percentage of new businesses fail within the first two years. This indicates that lending is a risky business and the lenders are well aware of the potential of default.
To get a better idea of the issue, suppose 10 people came to you asking for $10,000 each as a loan. If you accept their request, you would have loaned $100,000. If you were expected to be paid back only $20,000, which means you will suffer a loss of $80,000, would you still go ahead? No.
Now consider each of these people pledged assets that are at least worth the amount they borrow ($10,000 in this example). Then you would gain the confidence to provide the loan because even if the borrowers default you can satisfy the unpaid loan by selling their collateral.
Post-financial crisis of 2008, banks have imposed strict requirements on business lending. As a result of this, the default rates on small business loans became as low as 2% in 2014. The reason is that business lending decreased dramatically during the period and only the highly-qualified applicants managed to get loans.
The Kauffman Foundation found that about 20% of the credit applicants that were part of the survey said that they weren’t granted credit. When some businesses got credit, they weren’t mostly given the full amount they applied for. According to the Federal Reserve, only 50% of the 82% of small employer firms that applied for financing got the full amount they requested. Moreover, businesses are not often encouraged to apply for additional credit because they expect that the request will be turned down. The Federal Reserve found that 16% of small businesses were discouraged from requesting financing or additional credit. This 16% may include more minority and women-owned businesses rather than businesses owned by men and non-minority.
If you are planning to get business financing for your company, understanding how most of the businesses in the US manage to get it will be useful.
The US Census Bureau and the SBA say that only 5% of companies depended on bank loans to expand their capital. Nearly the same percentage of businesses used their personal credit card for funding. It is disappointing to know that 57% of the companies decided against expanding their business because they were either denied credit or did not even apply for it. Business owners mostly depended on their personal savings for funding their businesses.
The Building Block Capital Small Business Lending Index is a monthly report that keeps track of business lending activity. As per the findings of the Small Business Lending Index, small companies mostly depend on banks for business loans. The report is an analysis of the lending activity of some top lending entities.
Below is a list of the advantages and disadvantages of unsecured business loans
Some business owners find unsecured business loans as the only way to expand their business operations and finance. However, unsecured business loans have limitations, and in most cases, they aren’t actually “unsecured” because the lenders demand a personal guarantee.
Similar to merchant cash in advance, unsecured business loans usually have a higher interest rate than other types of loans.
An unsecured business loan by all means isn’t a reality.
Business owners will probably find the lending landscape quite confusing and it is known without a doubt that there will be bad actors in the lending business. Using common sense, you can avoid getting into debt with extremely high-interest rates and prevent the loss of your business and personal assets.
If you are ever offered an unsecured business loan that seems too good to be true, it will mostly be that way. Evaluate an unsecured loan by using the following methods: