Securing funding for your business can be a tiresome task – for seasoned entrepreneurs and startup owners – especially when there are misinformation and dubious stories about business loans floating around in the market. One such funding option which is surrounded by myths is unsecured commercial loans. Such misconceptions often stop entrepreneurs from checking out this valuable funding option.
The aim of this article is to dispel common myths and provide business owners with hard facts so that they can make an informed decision about commercial financing without collateral.
What Are Unsecured Commercial Loans?
In layman’s terms, unsecured commercial loans are business loans that do not require collateral. It means you don’t have to provide assets, such as real estate or equipment, to raise funds for your business. Rather, lenders analyze your loan application based on your business creditworthiness, financial stability and overall risk profile. For small businesses or startups with no substantial assets, this can be a good funding option.
Myth 1: Are Unsecured Loans Really That Expensive?
One of the most floated myths about unsecured commercial loans is that they come with high interest rates. Here is the truth. Compared to secured loans, these loans may have higher interest rates, but the difference between the loans is that much. The interest rates are slightly higher to make up for the risk of offering commercial financing without any collateral as security. However, for businesses with good credit scores and solid revenue streams, these rates are often manageable. Don’t forget that many alternative lending options do provide competitive rates based on the borrower’s financial history and loan’s purpose. Moreover, in many cases, the benefits from flexibility and faster access to capital can outweigh the cost of interest.
What Borrowers Can Do
The first and foremost solution to this problem is to improve your business credit score. High credit scores are offered lower rates on unsecured commercial loans as it show the lenders that you’re a responsible borrower. You can boost your score by regularly reviewing your credit report, paying off existing debts and restricting new credit inquiries. This action will have a gradual effect on your credit scores, making fast business loans easily available and affordable.
Myth 2: Can’t Qualify for Unsecured Loans? Think Again!
Unsecured commercial loans have an arduous and lengthy approval process. They are impossible to get approved for, especially for startups. This misconception comes firmly attached to this type of alternative funding option. These statements may have a germ of truth in them, but they don’t show the complete truth.
In reality, this lending option offers fast business loans with a more streamlined application procedure than secured loans. Many online lenders, in fact, have made it easier for entrepreneurs to apply for loans quickly and easily; some even provide funding within 24-48 hours of approval. But it is also true that unsecured loans can have stricter qualification criteria compared to secured loans, but they are not unattainable. These criteria are based on the business’s financial health, credit score, and its ability to repay the loan. Startups with a steady cash flow or a strong business plan will experience a smoother process when they apply for small business financing solutions.
What Borrowers Can Do
The key to bust this myth is to ensure that your loan application is strong and include relevant and updated documentation, such as a solid business plan, financial reports and other significant statements that showcase your business’s growth chart. Even without collateral, showing your business’s earning potential can substantially increase your chances of securing unsecured commercial loans.
Myth 3: Unsecured Loans Are Only for Emergency Funding
There is a mistaken belief that unsecured business loans are used when the business is in extreme financial distress, as a last resort when all other financial options are exhausted. Truth is that the quick capital access benefit offered by this type of business loan can be used for business growth and expansion. Many companies utilize the funds from this loan to purchase new equipment, restock inventory, launch marketing campaigns and even expand operations—all without the need for collateral.
What Borrowers Can Do?
Borrowers should not view unsecured commercial loans just as emergency funds, rather use the capital to boost business growth. The flexibility that this alternative funding option provides can help your business to launch new products, hire staff or enter a new market. Use the money in the way that best serves your business.
Myth 4: Unsecured Commercial Loans Are Only Meant for Businesses with Perfect Credit Scores
Let’s debunk this myth right now – businesses with not-so-perfect credit scores can also qualify for unsecured commercial loans. It is true that having a higher credit score can definitely boost your chances, but it is not the only criteria that matters. A lot of lenders tend to look at other data points too, such as your revenue, business history, and even your personal financial health to evaluate the risk. Moreover, there are small business financing solutions that offer financial solutions to businesses with low credit scores by providing tailored loan packages. So, there is no need to stress that your low credit score might not get you the funding you need. But rather, you should start working on improving your credit to get better interest rates and a high funding amount.
What Borrowers Can Do?
The key here is to look beyond the traditional banks and check out alternative lending options. These lenders understand that their customers are searching for flexibility, and they often tend to take a comprehensive view of your business, examining factors like cash flow and future earning potential. This makes the loans a usable option even for businesses with spotty credit history.
Myth 5: Approval Process for Unsecured Commercial Loans Is Just Too Long
One of the most talked-about benefits of unsecured commercial loans is their comparatively faster approval process. Contrary to secured loans, which may require a tedious asset appraisal process, no collateral business loans often come with faster turnaround times, with some lenders offering approvals within 24 hours.
With the emergence of online lending platforms, fast business loan applications have become simpler and quicker. Nowadays, business loan applications can be completed within a few steps and approvals can be received in a matter of a few days.
What Borrowers Can Do?
If you are looking for smoother and quicker approval, make sure that you choose a lender that specializes in fast business loans and has a streamlined application process. Any lender using modern underwriting technology can be a good fit as they would usually provide fast approvals to avoid any unnecessary delays in fund disbursement.
Conclusion
Unsecured commercial loans are not as intimidating as they are made out to be. Indeed, there are some challenges, such as slightly high rates of interest and strict eligibility criteria, but the benefits certainly outweighs the drawbacks. Businesses can take advantage of the fast and flexible aspect of the loan to get the funding they need without putting any of their assets at risk.
By unlocking the truth behind these common misconceptions, you can make more informed decisions about your financing options. Whatever stage your business might be in, unsecured commercial loans can provide a viable solution to help your business flourish without the stress of collateral.
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