Customers can borrow unsecured business loans without offering any security to a bank or a financial institute. The various factors considered to grant a loan are the credit score of the applicant, age, income, financial documents, and more. It is an appropriate financing option for those who do not have any assets to use as collateral. You may be eligible for a higher loan if your company has a high level of monthly turnover. These loans are a great asset to businesses. However, several myths and false information revolve around them. Let us address these myths in this article.
1. No liability
Many people assume that borrowers are not responsible for the loan liability since it is “unsecured”. No collateral further intensifies this myth. People imply that there would be no issues if they do not pay back. However, this is not at all the case. The borrower is still responsible for paying back even if they do not put up any business asset as collateral.
For instance, some lenders may ask you to provide a personal guarantee as a part of the application process. If your business fails, the lender may try to recoup the debt by seizing your personal property. Legal routes are also available to recover debts.
2. Only small businesses can seek an unsecured loan
People assume that unsecured loans are best only for small businesses. They think that one can procure only small amounts through this loan type. Big companies still approach banks to borrow. You can gain substantial funds in the unsecured finance field, ranging from 5 to 250 thousand. Depending on the financial health of your business, some companies may also provide larger amounts of funds.
3. Business cash advances and unsecured loans are the same
You can take funding against your credit card sales against a share of your monthly credit card earnings. It is known as a business cash advance. Unsecured loans, on the other hand, can help you through several financial challenges. Both these are a type of business loans but with very different meanings.
4. Only banks lend unsecured loans
In recent years, the financial models have evolved a lot. There are several sources of funding other than banks. A variety of lending institutions are available in the market. These alternatives provide unsecured loans at the lowest possible interest rate to businesses.
5. A small amount is a hindrance to loan approval
A misconception that people have is that unsecured loans serve the purpose of small business loans. There is a belief that a small amount means rejection of the application. However, this is not at all the case. Whether you need a large amount of money or a small amount, you can apply. Just make sure that the loan amount is sufficient for your needs, and you will be able to pay back without any defaults.
6. The only crucial aspect is the rate of interest.
The only factor most borrowers consider is the interest rate while applying for a loan. Will you accept a lesser loan amount if you get a lower interest rate? A lender may offer a higher cost in exchange for a cheap interest rate. We recommend all borrowers to consider all factors and not just interest rates to achieve maximum benefit.
7. Long application process
The world has shifted online, and so has the financial market. These days, you can apply for a loan online. The funds will get approved within a couple of hours, and you can get the funding within a few days. Check the desired company’s web portal to check their eligibility for loan approval. Upload the required scanned documents and apply for the loan. There is no more need for waiting in long queues with a stack of paperwork for days to get the loan approved. Get immediate funds to meet unexpected financial challenges.
8. Perfect credit history is a necessity
Another common misconception surrounding an unsecured loan is that borrowers need a perfect credit history to qualify. Good credit history will indeed improve your chances of getting a loan, but there is no need for an ideal track record.
9. Payday loans and unsecured business loans are similar
Payday loans are for personal purposes and are repaid from your salary, but unsecured loans needs to have a business purpose and are repaid from monthly turnover of a business.
Conclusion
People show reluctance to take unsecured loans for business due to several misconceptions. Believing in these will pose difficulty in expanding your business or getting funds in the event of an emergency. The application process is quick, and these loans offer a competitive interest rate.