An unsecured business loan is typically offered to small businesses or start-up companies that are seeking a low-level avenue for financing. Typically unsecured business loans do not exceed $50,000 and are regarded as short-term streams of financing. These types of loans are offered to companies that are in need of second-level funding. This type of funding is regarded as the phase following the establishment of a company.
An unsecured business loan can be used for anything surrounding the business in question. Purchasing equipment, office expansion, remodeling, marketing, advertising, or expansion are typical maneuvers taken by companies that receive an unsecured business loan. In addition to this, an unsecured business loan essentially approves a line of credit; this line of credit can be tapped into whenever the company needs additional financing.
Although unsecured business loans are typically short-term financing instruments, they do not require the company to offer any form of collateral to secure the loan. In addition, the business is only charged interest on the money borrowed from the line of credit. That being said, the typical interest rate associated with an unsecured business loan is much larger than a secured loan.
Banks and other lending institutions, when qualifying a business for an unsecured business loan, would like to see positive credit history that shows an ability to repay the loan. Since the loan is not backed by collateral, a bank will be more cautious when offering an unsecured business loan. Established and strong credit scores is the best way to ensure an unsecured business loan.