3 Best Unsecured Business Loans
Business loans are a common need for small and medium-sized companies that need working capital, want to expand their operations, or refinance existing debt. For these owners, there are multiple types of business loans available.
Secured business loans are those backed by collateral, such as equipment, real estate, or your business. When you get a secured business loan, the lender will place a lien on the collateral, ensuring that if they cannot repay the loan, there is recourse for them to get compensated through the sale of the alternative asset.
On the other hand, unsecured business loans are not backed by collateral and often rely on the borrower’s credit record. They rely on a reliable personal and business credit history, and due to this factor, many lenders consider this type of loan to be riskier and may require a shorter period to pay back the funds. Additionally, unsecured loans may have a higher interest rate than secured loans.
Many business owners may seek an unsecured loan for different business needs despite these factors. The following options represent some of the best choices for an unsecured business loan.
- Business lines of credit: A business line of credit is an unsecured revolving line of credit that works like credit cards. You can borrow any sum up to a defined limit and will be charged interest on only the funds you withdraw from the account. Business lines of credit are often the best option for meeting short-term business needs, such as securing working capital, addressing shortages in cash flow, or expanding your operations. Many startups also use this type of loan in the early days of operations since the funding can be used flexibly.
- Invoice factoring: Invoice factoring allows a company to sell its unpaid invoices for cash upfront. The company that purchases the invoices is then the entity that will collect payment from your customers. The amount you can sell the invoices for may depend upon your industry. Still, as a general guideline, lenders usually pay approximately 80% of the face value of the invoices while they will seek full payment from the customers. These loans are relatively easy to secure and may not even require a personal guarantee since you are selling an asset directly to the factoring company. But take a look at the fees for invoice financing. The fees, along with the loss you take to secure the cash, may not make this type of financing worth it.
- Term loan: Term loans are most aligned with traditional financing, despite the need for no collateral. Short-term loans are often only available to those with a stellar credit history, but they are worth it if you can secure one. With this type of loan, you get the funding upfront and repay it, with interest, at fixed intervals over an agreed-upon term.
Business loans are often critical for meeting a variety of different company needs. To discuss financing options, including unsecured business loans, contact Penn Com Capital today!
Penn Commercial Capital can help you secure your next round of financing or business loan efficiently and ethically. We’re proud to champion the small businessperson and can finance clients seeking loans from as little as $100,000 up to $100 million.
