Need Business Funding? Consider Unsecured Financing

We're all not Bill Gates, and unlike Mr. Gates, most of us at some point will need to take out a loan if we ever want to start our own business. This is where most of us would put our house up for collateral, risking it all in hopes of becoming independently successful. 

For the 7+ trillion of us who are not Mr. Gates, however, our assets are limited. And, for some small business owners, particularly those who are just starting out, “limited” means a used-car and a few pieces of jewelry. In other words, there are plenty of business owners who do not have many assets to borrow against, even though they’re the most likely to need access to funding!

Never fear! You don’t necessarily need a load of home equity to borrow against. You may be able to use unsecured financing for your business borrowing needs. Let’s discuss.

What is Unsecured Financing?

Unsecured financing is a loan or any other type of borrowing vehicle that is uncollateralized. This means there is not an asset backing it like there is with your car or home loan.

Instead, the lender will rely on your credit. Thus, you’ll want a strong credit score. Most experts agree that a score in the high 600s or above indicates good credit management, meaning lenders will generally work with you if you’re in that range.

Why use Unsecured Financing? 

Ideally, you’d obtain a collateralized loan to fund your business needs. That’s because such loans typically come at a cheaper rate since you’ve pledged an asset in case of default. However, many business owners simply don’t have that option, making the lower interest rate a moot point.

Thus, if you’re in the market for unsecured financing, your main alternative is probably a credit card. Note that, if you’re considering an unsecured line of credit versus a traditional credit card, the former typically comes with a lower interest rate.

Also, consider that an unsecured line of credit can be flexible, just like a credit card, in that you will only pay interest on the amount of money you use.

And, it’s easier to obtain than a traditional loan, meaning you won’t have to jump through a zillion hoops to borrow funds.

With this in mind, if you’re considering using plastic to fund your business, you may want to give an unsecured line of credit or some other form of unsecured financing a second look. You could save hundreds or even thousands of dollars in interest expenses by doing so.

The Bottom Line

Unsecured financing is a strong option for newer businesses and others without a lot of valuable assets to borrow against. It’s typically a cheaper borrowing option than a credit card and offers mostly the same perks. Consider this option if you simply do not have the assets to obtain a collateralized loan and don’t like the idea of using a high-interest credit card to cover your business needs.

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