Unsecured Business Loans – the Benefits for Small Businesses While loans are quite helpful in kick-starting a small business enterprise off the ground one can’t help but take note of the obvious catch to it. Although seemingly inconsequential, they are very important. Security in the acquisition of loans is usually placed to ensure that the receiver doesn’t fail to return the money to the lender. This can be done by the use of a specific asset as collateral or by periodic deductions from the business’ cash flow. A method of loan acquisition that have gained prominence over the years is the unsecured loans. Unsecured small business loans are monetary loans that do not require the lender to secure any of the borrower’s assets before making him eligible rather judgements are made based on the business’ cash flow and assurance that the business has the ability to remain solvent over a long period of time. This is one major point that gives it presidence over the secured type of loans. In unsecured small business loans, the borrower is given two options of payment. One of them is that the borrower is given the option of paying a fixed amount of money for as long as the debt still stands, till it is paid off fully. The other is that a percentage of your daily sales or income will be deducted each day, until the debt is cleared.
These loans can be found in many banks under the guise of credit card debt or bank overdraft. It can also be gotten through funding from family, local money lenders or peer-to-peer lending. A common and very fast way of acquiring unsecured loans is through the acquisition of online business loans. They are quite convenient and are easily accessible especially when one needs immediate cash. As with all good ventures it has its disadvantage, the major one being that instead of securing a specific asset against the borrower a general lien is placed over the entire business and the lender may lay claim to ALL the assets, instead of the specified one, as with secured loans.
Another disadvantage is that on account of the borrower’s inability to pay up the debt owing to negative cash flow or insolvency of the business, the borrower would be required to pay up in replacement for the business, a pre-signed agreement between the two parties. This is considered an illegal transaction in some areas as the transaction is usually made to put the borrower at a disadvantage. In legal systems, the perpetuators of these illegal transactions are usually referred to as ‘Loan Sharks’. As with online business loan and local lenders, a high interest rate is placed, in order to secure their interests. This is a very risky venture in that the daily or fixed deductions from the cash flow may stunt the business’ growth, especially in situations of low sales. To secure your own interest, be certain that you really need the money and are able to meet up with said requirements.