Business generally is the idea based on which a person thinks to earn with more flexibility and suitability. People either shifting from a job or altogether starting a new business need finances to support their business too. For this, they require business loans also known as commercial loans. No security loans or unsecured business loans are the priority of these business initiators. No security business loans can also be defined as less complicated loans with no strings attached. A business loan can be acquired by self- employed individuals, private firms, partnership business, and retailers, etc. for a business to become successful, basic requirements are proper executable planning and financial support with determined knowledgeable persons leading the business. All businesses are not huge at the start; some can be defined as small businesses too. With hard work and tenaciousness, the person can expand the business out of the station and out of the country as well. Some successful business examples that started from small investments are KFC, McDonald’s and Ali Baba, etc.
Things to know about no security business loan
There are certain things that are mandatory for a person to keep in mind while applying for no security business loans. As defined above, these loans are much attractive for beginners to support their businesses. Moreover, these are best for a starter who has less to offer in return for a business loan.
- Reasons for business loans
A bank, private investors, credit unions or public funds can be the possible lenders in case of business loans. To get approved for no security business loan or security business loan, strong reasons and borrower profile is required. An attractive business plan with more expanding attractions is mandatory for business loans. Just like no security loan is attractive for the businessman, the reason for getting approved for a loan is also more attractive. The real estate business due to strong collateral is easy to get loans. To purchase furniture, inventory, equipment and increasing working capital are the other reasons for getting a business loan. Reasons for getting loan matters because the lending valuable amount is the risk taken by lenders. There always exists a possibility that the borrower will fail to meet the repayment options, strong reasons for getting a loan lessens the amount of tension. No security business loan, therefore, is riskier and is the way how the lender is mitigating the risk. These loans, therefore, are with high-interest rates and strong requirements and pre-conditions a lender attaches to the loan to ensure repayment.
- Essentialities to acquire a business loan
- Depending on the city/country and type of bank, different pre-conditions are held to get approved for a business loan. A person with a decent credit history gets easily approved. Moreover, the quantum of the loan depends on the profile and history of the person applying for the loan. A person having a bad history also gets the loan in case if he shows his business type and assets of the company. If his assets are valuable, the bank will approve of the loan. Lesser or no collateral security (in the case of bank loan) provides the freedom to businessman to apply for the loan. Other essentialities are amount owed in credit card, tenure of having credit, type credit in use and recent credit transactions. Bankruptcy and past delinquencies are the obstacles in getting approved for a loan even if it is a small business loan. Some countries such as America have additional requirements especially designed for small business loans. On the other hand, online lenders are more flexible and easy to handle.
- Structured business loans
- Banks loans are structured, hence, there are fewer chances of spending money needlessly. These loans are structured according to the requirements of the business. Business loans from the banks are more strictly cross-checked as well. This feature somehow compels the businessman to think twice before investing. Another important point to mention is that banks do offer more attractive loans and flexible repayment options if the business is supposed to be started by women. Many countries including Bangladesh, India, etc have encouraged female business planners by proving more quantum of loans with easy repayment options and fewer interest rates.
- Interest rates
For a startup business, acquiring the loan is easier as less paperwork is done. Repayment to the bank is mostly from 1-6 years after the approval of the loan from the bank. Interest rates, however, vary from business to business. Mostly the ratio is from 10-15%. Mostly this interest rate remains constant throughout the tenure if fixed once. Sometimes floating interest rates are also there depending on the profile of the borrower and the type of business he is starting. These interest rates, in this case, will vary through the tenure of the loan.
- Term loans
Loans can also be defined as long and short term loans that depend on the amount of money and repayment. Term loans are a large number of loans with more interest rates and longer repayment. The least interest rate is recorded at 7%. For a small business loan, this amount of interest rate is highly affordable. Short term loans have a higher interest rate because of the short time of repayment. Short term loan repayment can be weekly/monthly too.
- Personal guarantee
A personal guarantee is one of the main features of no security business loans. This means the promise that the borrower will return the money in any case even if the business fails. In a business fail case, a person is unable to return the amount of money in an agreed time, the lender can siege his assets. This means, seizing of his personal assets including bank accounts, car, real estate, etc is seized unless the loan amount is paid back. The repayment hence is 100% in the case of an unlimited personal guarantee. The limited personal guarantee is when the business is a partnership business. In the partnership business, one person is held accountable for a specific and not the whole amount loaned previously.
- Blanket business lien
This also comes under the personal guarantee of repayment options. This generally means that if a business fails to repay the loan amount in the agreed time a lender sees no other repayment option. The lender can directly sell the business assets to gain the money back. Many businessmen use business assets as collateral due to which this is also possible. This can also be categorized as liquidity of assets to gain the money back that was previously lent as a loan.
- Comparative low loans
Most importantly the difference between secured and unsecured business loans is the amount of money of loan itself. Because of the fewer strings attached and no security, the amount of loans is mostly low and more structured to be paid at different times. In the case of secured business loans, the loan amount is much more based on the value collateral. While in the other case, as more risk of repayment is involved, the loan amount is set low. In this case, due to the above-defined reason, the interest rate is higher and the repayment period is short too. Collateral also increases the longer repayment period that can be extended up to 30 years.
- Poor credit history
Poor credit history can be the main obstacle for an unsecured business loan. More risk is involved if the borrower profile has more credit flaws including bankruptcy etc. because in no security business loan no collateral is involved, no person with a poor history of credit is preferred for granting the loan. As in an unsecured loan, it seems impossible for a lender to get his payment back until the borrower spends months and years to build his strong credit history.
- Loss of potential assets
As there is no collateral involved, there can be no potential loss of assets in an unsecured business loan. On the other hand in a secured business loan, if the business fails to repay, personal assets can be sized down. A secured business loan is therefore equivalent to losing all of the valuable money earned in the hard times instantly.
Conclusion
An unsecured business loan for the beginner who does not have much to offer as collateral is a perfect choice. No security loan moreover is less complicated with least strings and vague terms attached. The interest rate, even if higher is comparatively lower to the secured business loan.
