Obtaining a business loan from conventional lenders can be a daunting prospect
Traditional lending institutions typically ask for collateral, such as real property or personal items. When a business owner does not provide security, the traditional lending institutions will be hesitant to provide additional funding for the venture. A personal guarantee can help seal the deal and get the cash you need fast, but the process can be time consuming and frustrating. Consider these alternative financing options instead.
Unsecured business loans do not require collateral to obtain the funding. Unlike other business loan options, such as commercial credit cards or bank loans, you will not pledge property, equipment, or other personally owned or business items to secure a loan. Instead, you are responsible for paying back the funds you receive. An unsecured commercial loan can provide critical funding for a struggling business, as many lenders will expedite the approval process to avoid a credit score hit or a reputation for high delinquency. Lenders also consider your personal credit score, which is based largely on your financial history, when determining the amount you qualify for.
Equipment Rentals lease
Another option available to businesses that require quick financing. Some equipment leases require little to no collateral, making them ideal for small entrepreneurs and budding entrepreneurs. The cons of equipment rentals include high interest rates, strict repayment schedules, and limited choice of locations. Business owners can take advantage of equipment leasing programs offered by some banks to fund their ventures. Equipment loans can be harder to qualify for, but may prove to be the best choice for small businesses in short-term needs.
Secured small-business loan options typically require collateral and offer competitive interest rates. These loans are available from private lenders and financial institutions such as banks. Typically, unsecured business loans require borrowers to place their personal assets – such as jewelry, furniture, and sports vehicles – as collateral. In return, the lender guarantees that he will be paid back the money in a timely manner. If the borrower defaults on his payments, the lender may have legal recourse to take possession of personal property held by the borrower.
One type of small business finance is called working capital loans
Which allow business owners to borrow up to a certain level of equity. Working capital loans may be used to purchase inventory, raw materials, office furniture, or inventory-based services such as billing and accounting. Working capital loans can be very useful when a business is cash flow problems or they can be used to make purchases that are not cash-based, such as vehicle purchases. Business owners should carefully assess their working capital needs before applying for one of these loans.
Another type of small-business loans is an unsecured business line of credit (also known as an UBLOC). Unlike working capital loans, an unsecured business line of credit does not require collateral. Business owners who do not have collateral can use this type of financing to make credit card purchases and other high-priced items that are not liquid. Unsecured business lines of credit typically have higher interest rates than secured loans. Most business owners obtain an unsecured business line of credit on the first try – this means obtaining a loan with a higher interest rate.