Unsecured loans can be a risky proposition. However, with the right approach and mindset this kind of loan that does not require any kind of collateral can be highly advantageous. They come with advantages: it is fast money and there is less risk because none of your assets are involved. They come with risks: high costs (high APR) and large payments for starters and hence borrowers threading this path need to consider the steep chasm of its downfall. In order to qualify, follow the tips on this link.
- Pro 1: Immediate access to cash. because there is no need to appraise collateral, money comes much quicker. There is an enormous reduction of paperwork necessary. Loans can be approved in a few days!
- Pro 2: bad credit may not be an obstacle! If personally your credit is weak but you have revenues you may be able to get approved. With that said, there are may requirements that will have to be satisfied and these vary by lender.
- Con 1: High cost. the strength of your business and your credit score replace the collateral. Since there is considerably higher risk for the lender, there is higher costs involved. There will be higher APR and fees some going beyond 100% a year. With collateral the loans can cost 50% less.
- Con 2: Larger repayments: because of the higher APRs, shorter repayment cycles and other fees, your monthly payments will almost certainly be higher. Taking out 50k with 25% interest will end up being much more costly than 5% collateralized loan.
Problems with an unsecured loan: Pros & Cons
50% of all small businesses fail in under 5 years in the United States. Unsecured loan can be a way to remove oneself from losing it all since your personal assets such as your home or personal savings or inventory.
- Your credit does not matter as much. Although important, your credit history does not matter as much as you would think. It is much more about how well your business is running than a number that an agency gives out.
- Cashflow matters. Your daily cashflow can be the only data point validating the health of your business and the likelihood of your repayments.
- Business history matters. Startups will have a hard time finding lenders willing to open accounts. You need at least 2 years of solid revenue, but there are exceptions.
- Shopping around. You will be surprised that some lenders can cost hundreds of percent more a year when it is all said and done.
Problems with an unsecured loan: Qualifying
Qualifying may be difficult even if you are not required to have collateral. Lenders will likely want proof that you have sufficient regular cash flow, a history of being in business and annual revenue within their own threshold. It could be more difficult if there are issues with personal credit and bankruptcies.
- Watch out for prepayment fees. They can add up!
- Make sure you understand variable rates that can change under certain conditions and break your bank.
- There are differences in terms of reporting. Some lenders won't report you to agencies which can be an advantage.
- Have a business plan. Everything else equal, have a business plan that projects the extra revenue generated because of the loan you are about to take out.
Problems with an unsecured loan: Tips to avoid expensive, bad lenders
- Take out a loan from a friend. Make sure it is notarized. This is important: make sure you don't ruin your friendship over money.
- Take out a loan with a credit union or social bank. These can be life saving and with excellent customer service.
- Have a business plan ready and find an investor. Maybe what you need is a new startup altogether! Here is some advice!
- Take out a Bitcoin Loan, which can end up being very cheap depending on the price of bitcoin at the time of repayment.
- Perhaps it is time that you reconsider the path you have taken with your life and start thinking of ways of living with less.
