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Unsecured business loans can be the key to unlocking exciting and new potential for your business. But how exactly do they work?
When it comes to growing a business that is not only profitable, but also something you can be proud of, there are a number of things you will need to consider. Funding is one of the main concerns that can make or break a growing new business. But, as they say, you have to spend money to make money. Especially when it comes to the early stages of your business model. Finding accessible liquid capital that is available quickly can be difficult, but not if you qualify for an unsecured business loan.
There are plenty of unsecured business loan options in Melbourne, meaning your business could be just a short time away from being on the fast track to excellence. Find yourself in need of a high ticket item? Perhaps you are looking for a cash flow boost in order to better market your product? Maybe you’ve grown so much that your team needs a few more awesome people? Whatever your business needs, an unsecured business loan can help. And it can help very quickly.
How Do Unsecured Business Loans Work?
Unsecured business loans in Melbourne work similarly to those you can find anywhere else in the world. What makes unsecured business loans so attractive to many small and growing businesses is that they are much faster than conventional loans, but they pose more risk to lenders. This is mainly due to how unsecured business loans work, as opposed to secured business loans.
Unsecured business loans are ideal for newer businesses, or those that are growing faster, because the lending business does not need to supply assets as collateral. Which explains why these types of loans are so popular with lenders, but they can be difficult to find because of the inherent risk the borrower is taking. With a secured loan, assets are used as financial guarantees, this means that if the loan defaults, or if the borrower is unable to keep up with their payments, the borrower can confiscation and sale of any assets used as security in order. to recover lost money.
For years, these types of loans were nearly impossible to obtain, but with the newest advancements in modern technology, most businesses no longer have tangible assets. Which means they don’t necessarily sell products or services that can be used for payment. Companies that deal with things like IT, consultancy, research and development, or other types of intellectual property are extremely important in the global economy, however, their assets are considered intangible. So the lending scope has changed, making it easier than ever to find unsecured business loans that can fit your needs.
Pros and Cons of Unsecured Business Loans in Melbourne
As can be expected, there are some definite advantages for businesses that choose to take out an unsecured loan versus a secured loan. However, there are also some drawbacks to the process that should be carefully considered before signing any paperwork.
The Pros
Some of the biggest advantages of unsecured loans are the speed with which they are processed, and the money that businesses can access. Because these loans do not require collateral, or valuations of those collaterals, businesses will not have to endure long waiting times while assets are valued, instead they will be put into funds almost immediately as assets once they are approved.
Another advantage these types of loans can offer businesses is that they are generally cheaper to start with, with lower if any upfront costs. Which meshes well with the speed with which borrowers can access funds. Relaxing restrictions and allowing businesses to get back to doing what they do best, all at lightning speed.
This quick access can help businesses get a quick boost in liquid cash flow, which can then be channeled straight back into production and growth. It’s ideal for businesses that have a huge one-off cost for things like machinery or personnel, allowing them to quickly break even and boost their revenue stream. Rather than having to wait to afford these types of necessities, which could put the business behind its estimated growth goals.
The Cons
However, many unsecured business loans have some less than ideal conditions. Again, most of these have to do with the amount of risk the borrower is taking. Since these loans are not guaranteed to the borrower, the overall costs are generally much higher than for a secured loan. However, these expenses are often included in loan repayment plans, so it is an expense that is incurred over time. Which allows the borrowed capital to be put to good use, producing the expected income and payment without the pressure of secured loans.
Some unsecured loans will require a personal guarantee from the borrower. This may mean that the board member or director securing the business loan will need to act as guarantor. So should the business default on the loan, repayment responsibility will then rest on the shoulders of the business owner personally. If you choose to act as a guarantor for your new business loan, pay close attention to what is expected of you should your company become insolvent.
The other important factor that any business considering an unsecured loan should be aware of is the strict criteria that many unsecured business loans come with. The terms of the loan, the amount available to borrow, and the financial history of the business will often be much more limited and comprehensive than some secured loans. Again, this is only to help borrowers mitigate their risk.
