Saturday, March 7, 2015

The Benefits And Setbacks Of Startup Unsecured Business Loans

By Leslie Ball

It is often exciting when starting a new company. It is the time when you have the feeling of being in control of the whole aspect of the business. When done correctly, it can be a very good start and a beginning of a very promising future. However, in the process of planning, you will often realize that capital is one of the limiting factors. It does not matter how well you plan, the need for additional funds is always there. The startup unsecured business loans can be the savior you are looking for at this stage of business development.

The unsecured startup loan comes in the form of a credit card facility. It requires no collateral and is only available for individuals with very impressive personal credit score. It can be used to inject cash into a newly formed company or to expand an already existing business.

Just like any other credit card facility, these credit extensions attract high-interest rates. One of their major setbacks is that they are more expensive as compared to the secured credit facilities. This is to compensate for the risk the lender is taking by entering the contract deal. However, it is an easy option as you only need an assurance that you will make repayment as agreed and a good credit history.

This type of financing is the best you can get at this stage of enterprise development; the bank is not interested in any collateral. All they require is your past history and your assurance that you will be paying according to terms and conditions that you agree upon. Understandably though, the lender is taking a bigger risk and is thus going to compensate with a higher interest rate.

As such, you know that you qualify if you have a FICO credit score that is at least 700. However, for those who have established businesses that have been in operation for many years, the financial records of the enterprise are considered. The past profit history and the cash flow statements are the major documents that the bank will base its decision.

For the potential borrowers, there are many things to put into account before making your application. The unsecured loans may be given in the form of merchant account financing. This is the form of financing where the lender charges an agreed percentage of the sales as the loan repayment. This is done by making deductions from every credit card transaction.

In addition to being expensive and the lender being very keen on your application, you have a shorter time to pay back the loan. As such, it is better to take your time to keenly consider your situation against the pros and cons of this facility before the decision to make an application.

Even with a short repayment period and higher interest rates in comparison to secured credit facilities, the unsecured options are very popular for the startups due to ease of access. As a borrower, it pays to conduct a research to compare all the options available. In addition to this, take time to shop around as some lenders offer better terms than others.

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