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The most common type of loan is unsecured business loansbut what exactly are unsecured loans, how do you apply for them and how likely are you to be approved?

In short, unsecured business loans are a type of loan agreement that do not require collateral. The lender sends cash and proposes you an agreement to pay it back with interest. The loan is not secured by anything, but a personal guarantee may be required and interest rates are usually higher to make up for the lack of security.

Flexibility vs Cost

An advantage of unsecured business loans is that they tend to be quicker than other types of loans and can be used flexibly for any business need. Whether you need to buy equipment, hire new employees, or pay for other business expenses, unsecured business loans are available to you.

Generally used for any purpose, unsecured loans are a smart way to pay off expenses while raising capital for your business – without providing real estate security, which is one of the biggest risks secured loans.

Startups and unsecured loans

It can be difficult for startups to acquire unsecured business loans as they typically do not have much previous financial management information or credit histories for lenders to assess, which can be considered lender risk.

However, this does not mean that it is impossible. As long as you have a decent credit history (although it’s not much) and can negotiate an agreement with your lender within a certain amount of time, getting a loan shouldn’t be too difficult.

The application process

When applying for an unsecured loan, applicants must have bank statements from the last six months, company accounts and the personal information of the director to hand. Without these, it is difficult to proceed with the application.

With unsecured business loans, you can usually end your contract early without incurring any additional fees or penalties as long as you make the appropriate payments on your loan to reduce monthly obligations.

The most important thing banks or lenders will consider is your credit score, as this usually determines your ability to keep up with monthly repayments. As an entrepreneur, however, you should always have the necessary documents ready, as well as a clear business plan that explains the reason for the loan and a repayment plan.

Since no collateral is required for unsecured business loans, this type of loan can be considered one of the safest and quickest ways to get cash for your business as there is no processing time for your application. However, because of this “no collateral agreement”, lenders try to reduce their risk by requiring business assets or personal guarantees.

Additionally, interest rates are becoming increasingly competitive in the unsecured space, making flexibility a key factor in determining which option is best for your business.

Unsecured loans are a great, flexible way to secure finance that can help boost your business that you can talk to industry experts to help you understand if this is the best option for your business.

Richard Dement

The author Richard Dement