Many small companies face money crunch in their businesses from time to time. At such a time, a cash injection from outside can prove to be a catalyst for them. However, getting a secured loan during this phase can be challenging, especially if they are unwilling to put their assets up as collateral.
While there are a few other alternatives to a secured loan, no security business loans are considered popular. No collateral is required for this type of loan, and they are given based on the borrower’s creditworthiness. Businesses can get the loan approved and have access to the funds much faster than in the case of a secured loan taken from a traditional loan provider.
What Are No Security Business Loans?
Unsecured loans are excellent financing solutions that allow small businesses to obtain funding without using their assets to secure the loan. In the case of a secured loan, the borrower has to use either company assets or personal property as collateral. If the debtor does not pay back in time, the finance provider has the authority to seize the collateral to recover losses.
For no security loans, instead of taking collateral, the loan provider scrutinises the company’s financial reports, cash flow projections, credit score, and several other factors to ascertain how much money a small business owner can borrow. Since there is no security on such loans, the lender usually demands a personal guarantee. Moreover, owing to increased risks, their interest rates are also higher.
This type of business loan can prove to be a valuable financial tool for small companies because of the following advantages:
- Low Upfront Costs
The upfront cost of no security business loans is comparatively lower because no asset valuation and legal fees usually involved with a secured loan are required.
- No Risks of Losing Assets
The best part of an unsecured loan is that the company does not risk losing any assets if they fail to repay the debt. If the borrower files for bankruptcy, the courts might discharge the unsecured loan. However, the lender usually demands a personal guarantee of the loan.
- Faster Loan Application Process
The process of applying for business loans can be pretty intensive. However, the complete process is relatively faster for unsecured business loans than for a secured loan taken from a traditional financer.
- No Collateral Required
Many start-ups lack collateral as they might not possess any business assets that can be offered as security to the lender. However, they can still obtain a no security loan provided they have a good credit score.
How Can Unsecured Loans Benefit Small Businesses?
These loans are the perfect choice for those companies that prefer not to use their assets as collateral for funding. They are ideal for any SMEs interested in acquiring additional working capital. They are also helpful for small businesses that do not have the means of raising funds quickly to capitalise on a time-bound opportunity.
The most significant advantage of no security business loans is that people can instantly obtain them without hassle or lengthy paperwork. That is why they are best suited for small and medium-sized businesses. Their streamlined approval process and lower risks for borrowers make them the perfect go-to option for those who need quick funding.