What are Startup Loans?
A Startup Loan is designed to help a new business take its first step in the competitive world. These loans help the new business owners fulfill their critical requirements, such as funding the launch and purchasing equipment.
When applying for business loans, there are different criteria for getting approval. But banks and online lenders have their conditions to approve the business owners.
Thus, the lender usually asks for collateral when applying for business financing. This is an important decision because this eliminates the risk for the lenders. For instance, if the borrower cannot repay the loan, the lender has the right to hold his collateral.
This collateral includes a car, property, home, or other significant assets. Moreover, risking your essentials can be problematic for the borrower, especially when you have a startup business.
Thus, most borrowers look for loans that need no collateral, and for them, Unsecured Startup Loans are the best option. This works like credit cards, as this method consists of multiple revolving credit lines.
So, let’s jump into it and find more information about these loans.
Unsecured Startup Loans
These loans don’t need any asset or guarantee to give you the loan amount. These loans depend on the business’s credit report and judge the company’s eligibility.
A business owner with a higher credit score can quickly approve these loans. So, banks and lenders have different conditions to verify the credit history they give you the required loan amount.
Business Loans with No Collateral
Unsecured business loans allow you to borrow an amount of money without putting your asset at risk. If I put it in simple words, then it means that you don’t have to hand over your purchases to the lender to get a cash amount.
Commercial real estate and equipment loans are the most common examples. Compared to secured loans, the no-collateral business lenders face a higher risk of borrowers if they cannot repay the loan. These lenders evaluate factors like your credit history, score, and annual revenue.
Because they think these things determine your creditworthiness. And as a result, unsecured lenders make the borrower agree to the following clause to minimize the risk of lending you money.
Personal Guarantee
You may need to sign a personal guarantee to get the loan amount. This guarantee binds you with the agreement that you must repay the loan amount from your pocket if your business cannot do so.
Best Option for the Unsecured Business Startup Loans
If you are interested in getting Unsecured Business Startup Loans, the options mentioned below are the best. So, let’s explore them together.
SBA 7(a) Loans
The United States Small Business Administration offers financial assistance to the startup through SBA 7(a) loan programs. But one thing to keep in mind is that the application process for these loans can take several months.
So, if you don’t need the funding immediately, you should apply for an SBA loan.
Eligibility Criteria for SBA 7(a) Loans
SBA loans are preferable due to their low-interest rates and longer repayment time. But eligibility criteria are different from the other loans, and it takes several months to complete the application process.
Merchant Cash Advance
With the help of these loans, you receive an amount of money in exchange for your future revenue. Instead of paying your money back in monthly installments, you pay the merchant cash advance in factor rates.
Don’t you know what it means? It means that you must give your sales daily or weekly percentage.
A merchant cash advance is one of the great sources of funding for new startups with limited time in the competitive market. It requires less documentation as compared to the other types of financing.
The best thing is that the seasonal business and companies also take advantage of the merchant cash advance. It can also eat your profits when the sales are higher, and if you are getting paid well, so is your creditor.
Unsecured Lines of Credit
An unsecured Line of Credit is a renewable source of funding that doesn’t require you to designate a specific loan amount. Moreover, you don’t have to risk your essential asset to get this loan.
You can easily borrow the ceiling on your line of credit limit or only use a percentage as needed; when you pay off all the amount you owe, you can use them again when you need it.
Thus, this is an excellent option for people in their new businesses. Because they don’t have high credit value or strong credit history, make sure you fully understand these loans’ fees, interest rates, and criteria before applying.
An online Business Term Loan is one of the standard forms of lending money. With the help of this, you receive money, which you must repay in fixed installments over a specified period.
These loans can be long-term or short-term over a few months. And thus, the interest rates can be varied based on the duration of the time you choose. Startup businesses can take great advantage of these loans. Online lenders can benefit startup businesses because many creditors are willing to accept the lower credit score and short time in the industry.
But while online lenders are convenient for accessible funding, they also tend to charge high fees and interest rates from the borrower.
A business credit card can be a creative source of funding for your business. As we know, credit cards don’t provide funding for your loans, representing a line of credit you draw from at your dissection.
Thus, your credit limit is determined by factors including your personal credit history, time in business, and how much revenue you produce from your company.
So, these are the top five options that you should consider getting unsecured business startup loans.
Other Unsecured Financing Options
Equipment Financing
This is also beneficial for startup businesses that need significant cash. And they don’t need to put their collateral at risk. If your startup business needs heavy machinery or high equipment, then a lender that offers you the equipment financing will help you purchase your necessary equipment.
So, if you have a horrible credit history, then at that time, you still have a chance to get approval for this loan.
Invoice Financing
This financing allows you to borrow the money using the money anticipated from the client’s invoices, and they serve as collateral. Business owners who cannot qualify for traditional loans can take great advantage of these loans.
Popular Uses of Unsecured Business Startup loans
Now, you may be wondering for what purposes you can use these loans, so here is the list:
- Payroll
- Marketing and advertising
- Inventory
- Office rent
- Working Capital
- Funding for small business
- Expansion
Pros and Cons of Unsecured Startup Loans
Pros of Unsecured Startup Loans
- Online lenders may have very lenient requirements to qualify for these loans.
- They have lower financial risk because they need no collateral in this funding.
- They may have a less expensive application process.
Cons of Unsecured Startup Loans
- These have higher interest rates as compared to secured loans.
- It may require a personal guarantee.
- Loans amounts are lower than compared to secure business loans.
A Quick Wrap Up!
To sum up the discussion, we can say that loans are becoming necessary for business owners these days. But sometimes, they are confused about which loan terms are best for them. As there are a lot of companies that offer these loans, the wise decision is to choose the right one. Thus, BitX Funding is a well-recognized company that provides a vast collection of loans. We have financial experts who listen to your requirements and business conditions and suggest what is best for you. We guide you throughout the process and ensure that you get the loan amount on time.
