What is an unsecured startup loan?
Unsecured start-up loans are a great way for new businesses to get the money they need without having to put down any collateral or use a cosigner. Typically, an unsecured start-up loan is for those new business owners with great credit history and rating. Banks want to know that the money they are lending out will be repaid regardless of the end results of the business itself. With new businesses having such a high failure rate for the first 5 years it is risky for a lender to offer an unsecured start up loan.
Benefits of Unsecured Startup Loans
You do not need collateral. Unlike a secured loan, the bank is offering you money based on your past history as well as your promise to pay it back according to the terms and conditions.
How to get an unsecured start-up business loan
- Make sure your business meets the lender requirements
- Submit an application
- Negotiate the terms and conditions of the loan
- Sign the contract and set up a repayment schedule
Many are attracted to unsecured startup loans because no collateral is required. This allows you to get the necessary money to move forward with your business, without “putting up” an asset such as real estate.
Things to Consider
- Higher interest rate. Since the bank is taking a bigger risk, they are going to charge you a higher rate of interest on your loan. To avoid a higher rate, opt for a secured startup loan.
- Good personal credit and a clear history will make the application process much easier on you. Since you don’t have a history with your business (it is a startup, after all) the bank will look at your personal credit score and history. Make sure you have these details in order before you apply for a loan.
- The money is to be used for expenses related to your business. This can include anything from purchasing equipment to marketing and advertising.
Terms and conditions
The terms and conditions of most loans vary, the lender determines the terms and conditions by the borrower’s credit history and rating as well as their lending institutions guidelines. The borrowing businesses agree to pay the borrowed money to the lender with a predetermined interest rate. The borrowing business is not required to put up any collateral, down payment or cosigner to secure the loan. Also known as an unsecured business loan. The lender allows the borrowing business a predetermined amount of time to repay the loan. Failure to repay the loan will result in legal actions by the lending institution to retrieve the money borrowed.