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Understanding an Unsecured Small Business Loan

Written By Unknown on Tuesday, October 21, 2014 | 6:42 PM

Today will be discussing the details of an unsecured small business loan. There are many ways in which to fund your business and unsecured loans are just one of those ways. Many new businesses will seek out venture capital instead of loans as this has the advantage of not requiring repayment with interest. Whether you seek out venture capital or a business loans a matter of personal preference.

On the one hand you will avoid a payments as those interested in a business loan however if you have venture capital you are giving up a portion of your company to the venture capitalists. There are certain qualities of this loan type which should get a steady for seeking out a loan of this type.

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First of all we should discuss what makes a loan unsecured. Secured loans have collateral which back them up in case the loan is default on. For example if you were to purchase a car you would get an automobile loan. This loan would be backed by the vehicle which you purchased. If for some reason you do not make your car payments then they would be able to reclaim the vehicle as their property and sell it to try to recapture their lost from the loan.

An unsecured loan does not have any of this backing collateral and instead relies on other factors such as your credit report or if that is not an option some unsecured loans will simply rely on a high interest rate and quick repayment requirements. The thought their being that if they require their money back more quickly and they don't lend out as much and they charge a higher interest rate that even if some of the loans go into default they will still make money.

Next we should discuss the business aspect of the unsecured small business loan. Typically these loans are specially designed for small businesses, which are defined as businesses make under $100,000 in revenue each year. They typically have less stringent requirements that are required for larger companies but on the other hand they are also slightly more expensive as rates will tend to be slightly higher.

So to recap an unsecured small business loan is a loan which you get without having any backing collateral and which is used for your small business. Loans of this type typically have special concessions for the small business circumstance and can be a great source of funding for your expansion or other projects.

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