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Unsecured Loans for Businesses with Bad Credit: What You Need to Know

unsecured loans bad credit.jpgIf you’re a small-business owner whose business has bad credit and has applied for a loan from a traditional financial institution, your application was almost certainly rejected.

That’s because banks have been approving fewer and fewer small business loans in the wake of the most recent financial collapse. Ever so picky, banks lately tend to only lend money to businesses that have near-perfect credit scores and have been open for many years.

But just because you may not fall into that category doesn’t mean you’re completely out of luck. If you’ve had a hard time securing funding for your company, it may be time to apply for an unsecured business loan from an alternative non-bank lender.

Like any other financial instrument, unsecured business loans have their shares of pros and cons.

The Pros:

They’re easier to obtain. Getting an unsecured business loan is usually substantially easier, particularly for small businesses that have poor credit. Small business owners just have to prove they’re able to generate revenue on a consistent basis.

Money will be in your account quickly. Traditional loans require long, drawn-out application processes. If you’re lucky enough to be approved, you still might not see your money for 30 or even 60 days. Unsecured loans, on the other hand, are generally approved much faster. Fill out an application in 15 minutes and money could be deposited in your account the next day.

You don’t have to put up collateral. Obtaining a loan from a bank usually requires borrowers to put up collateral, like property, equipment, or other assets, like a 401(k), for example. In the event a borrower defaults on a loan, the bank is then able to seize the collateral in order to get its money back. Unsecured loans, on the other hand, require no such collateral. So in the event you default, you won’t have to worry about losing your home or your car.

You can get larger loans. When banks sign off on small business loans, they typically don’t part with a lot of money. Non-bank lenders, on the other hand, issue unsecured loans of up to $1 million—even for people with suboptimal credit.

The money can be used however you want. Typical bank loans are given for very specific purposes. Maybe you need to remodel your restaurant’s dining room or buy a new bulldozer for your construction company. Apply for a loan for that purpose and banks will make sure that’s how you use the money. Unsecured loans are much more versatile by design. You can use the money for any business-related expenditure or investment.

The Cons:

You’re still taking on debt. Though you don’t have to put up any collateral, your liabilities increase when you take on an unsecured small business loan. You’ll have to climb out of the hole sooner or later. But as they say, you have to spend money in order to make it. You can’t expect to grow your business if you don’t have any cash.

Unsecured loans are more expensive. Because non-bank lenders are willing to fund businesses that have poor credit without asking them to put up collateral, unsecured loans understandably carry higher interest rates. So you may have to repay more money over the term of the loan, but at least you’ll be able to invest in growing your business.

You’ll have to repay the loan sooner. Business owners might have as long as 30 years to repay a loan they receive from a bank. Conversely, unsecured small business loans typically have much narrower terms. So long as you go into the contract knowing that, you should be good to go.

If you’re shopping for an unsecured loan for a business with bad credit, make sure you partner with the right lender. Do your due diligence to find lenders that are favorably reviewed by their customers and highly rated by the Better Business Bureau. The right lenders will be completely transparent about their fees and will work with you to find the unsecured business loan that makes the most sense for your specific situation.

To learn more about how your small business can benefit from an unsecured loan, check this out.

Does your small business have poor credit?