All About Unsecured Business Loans
 One of the most difficult parts of stating a new small business is finding the financing to get the business up and running. Many banks and other lenders do not want to make unsecured small business loans.
They want borrowers to secure the loan with something that is of equal or greater value than the loan amount. That way if the borrower can’t make their payments, the bank can still get their money back.
Problems with New businesses
The problem is, new businesses don’t typically have anything that they can put up to secure the loan. They are looking for unsecured small business loans. Many times they have set up LLC’s to protect their personal assets. They don’t want to have to turn around and put their house up as collateral for a business loan.
If you have an excellent credit score it is much easier to get unsecured small business loans. If your credit is not great, it is going to be much more difficult to get what you are looking for. However, difficult does not mean impossible. There are ways to get unsecured small business loans if you are diligent, and look in the right places.
Research A Business Loan Online
The internet is a great tool to be able to research financial institutions that offer unsecured loans for small businesses. Not only can you quickly find places that offer these loans, you also have the ability to do comparisons so you can find the unsecured small business loans that will meet your unique needs.
One thing you will have to deal with are the interest rates, because you are not offering up any assets as security, unsecured small business loans will typically charge you higher interest rates. The rate that will be charged varies between different lenders, so that is one of the things you will have to look at closely.
Loans is Restrictions
Another issue that you may face when applying for unsecured small business loans is restrictions on how the money can be used. For instance, there may be a stipulation that this money can only be used for capital improvements, and can not be used for day to day operating expenses.
That means that you will not be able to use that money to meet payroll or to purchase supplies and inventory. There are not always these kinds of restrictions, but they do exist, so you need to be sure before signing any loan agreements.
Penalties for Late Payment
 One other thing you need to be clear about upfront is what happens if you fail to make a loan payment. Because unsecured small business loans do not have any collateral to protect the lender, the penalties for not making payments can be pretty high.
One thing that some banks will do when you fall behind on your payments for unsecured small business loans is to set up oversight over your businesses finances. That means that every financial decision needs to be cleared by the bank before you are allowed to spend the money.
There are a couple of reasons that you should avoid allowing this to happen. The first is that it slows down any business decisions you make. You may miss out on short term opportunities because the bank has not given their approval yet. The delays may keep your business from growing the way you want it to grow.
The second problem with the bank having oversight is that the person that makes the decisions regarding how you spend your money may not understand your business. You will have to try to convince them for every decision that is made, and they may or may not agree with your reasoning. The best thing to do is avoid being late on any of your unsecured small business loans payments, but it is something you should be aware of.
Alternative Loans
One alternative that some banks are offering to established businesses is to extend a line of credit. There are some differences between this and traditional unsecured small business loans that may help your business. The biggest difference is that you are only borrowing what you need at any given time. That means you are only paying interest on the amount that is outstanding.
For instance, your business might be expanding, and you now you will have to borrow money periodically to cover your expenses. With regular unsecured small business loans you would borrow the total amount needed, and then pay interest on that total amount.
With a line of credit you would only borrow what you needed at that time, then when you need more money you can add to the amount you are borrowing. This is a great way to keep your interest payments down as you grow your business.
While unsecured small business loans are more difficult to get than secured loans, they are available. You can check with the Small Business Association (http://www.sba.gov/) for help in finding a loan, or go online to find institutions that make unsecured small business loans.
Business.com has many different lenders listed so you can shop and compare: Do your homework to be sure to get the loan that best meets the needs of your business.
Points to Keep in Mind…
- The better your credit score, the better your chances of getting better loan terms
- Negotiate with different lenders to get better interest rates.
- Consider a “Line of Credit” instead of a traditional unsecured loan
- Know what the consequences are for late payments before you sign the loan agreement.
- Be aware of any restrictions on how you can use the money from the loan.
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