Business loans - What are the purposes that you can get an unsecured loan?

Unsecured Business loans - Your credit score does matters!!

Unsecured business loans are the ones that do not require you to provide any sort of collateral guarantee to the loan you are trying to get. This means, that in the event of the borrower falling behind on payments or in the worst case scenario defaulting, he is on the safer side with none of his properties being at risk.

In case of unsecured business loans, the lenders shoulder all the risk and thus will charge a higher rate of interest that they deem compensates for the risk element they took.

Unsecured loans are given on the basis of your credit score and the soundness of your business plan. A credit score of above 620 with a sound business plan plus your experience in the industry is all that matters.

What circumstances prompt you to unsecured small business loans?

(What are the purposes that you can get an unsecured loan?)

First things first. You, as a business owner would not like in the first place to go for an unsecured loan for the apparent reasons of high interest attribute irrespective of the collateral attachment not being there. But the uncertain nature of businesses will see you wanting for immediate cash injection to tide over a situation. We will see some of the reasons for you to go for an unsecured loan.

• You have an unexpected exigency and you need cash for a shorter period. You will not mind the higher rate of interest because the consequences of the situation unmet can be more damaging.

• The loan you need is for a short time and you don't want to tangle a property as collateral as you know it is a draconian procedure to get the property out even after the loan has been repaid.

• In situations such as when your cash flow statement and account payable and receivable are not very impressive, you know where you stand and the outcome of the application.

• You are a new business, you don't have much to offer as collateral nor is your cash flow register showing a steady growth. Your monthly revenues fluctuate hugely. So, your natural preference is a loan that is flexible in terms of repayment. Pay them when you have a huge return and pay less when it is lean the next month.

• Some of the SBA loans and bank loans can not be used for purchasing certain equipment's and inventory. But the unsecured small business loans do not restrict you on the usage front. You can even use the loan proceeds to purchasing businesses.

• Unsecured credit lines come with the benefit of paying interest only when you draw on it, making it very competitive.

However you know very well that institutions ask for a good credit score from you. A score of 620 or more is normally considered as a reasonable risk. So with this score you can expect to get the loan. But you stand a better chance with higher credit score, for all the risk the lenders take for you, this is the only guaranty that they have.