By Laura Jane College
Two primary types of debt exist: secured and unsecured. Secured debt requires the borrower to sign over collateral to the lender. For instance, if you get a title loan on your car, you have to sign over the title until you repay the loan. This concept works the same in business, only you might sign over the deed to other types of property.
Conversely, an unsecured loan requires no collateral. The lender makes its decision based on your business’s cash flow, credit history, reputation, and other factors. If possible, always try to get an unsecured loan when you need financing. Here’s why.
Keep Your Assets Free
Your business assets, from heavy machinery to business equipment, keep your company running smoothly. They can also prove useful if you need to make another large purchase down the road. An unsecured loan keeps your assets unfettered, so you can sell them off if you need cash or get an additional secured loan against them.
Retain Possession of Your Property
Additionally, with an unsecured loan, if you run into cash flow problems over the course of the loan, the lender can’t repossess your assets to pay off the debt. Losing a valuable piece of property or equipment could cripple your business, so try to avoid putting them in danger. An unsecured loan gives you peace of mind if you hit a rough financial patch.
Keep in mind that unsecured debt can come with higher interest rates because the lender takes on more financial risk. However, you have to weigh that against the potential for asset loss. Additionally, if your business has good credit, you can often get an excellent interest rate even if you pursue an unsecured loan.
Get Your Money Faster
It’s easier to apply for an unsecured business loan because you don’t have to handle paperwork concerning the collateral. For instance, you won’t have to worry about digging up deeds, titles, and other paperwork to prove ownership of your assets, and you don’t need to sign those documents over to the lender.
When you apply for an unsecured working capital loan, you simply supply the lender with the financial information requested, such as your forecasted earnings, past earnings, company value, and existing debt. Since you probably already have that information in your accounting software, you’ll just print it all out and take it out to the lender.
How Can Working Capital Loans Help?
Many types of working capital loans exist, from accounts receivable loans to factoring. You can also get a regular short-term business loan or apply for a line of credit. When reviewing different working capital options, look for products that don’t require collateral. Unsecured debt can permit more freedom for your business and its assets as well as save time and money. You can also speed up the process by working with an online lender that specializes in working capital loans.
It’s easy to see why most businesses prefer unsecured loans. While secured loans can serve their purpose in such situations, try to get an unsecured loan first.
Laura Jane College is a copywriter, content marketer, and storyteller who specializes in business and finance. She believes that every brand has a unique story, and she strives to tell it in the most compelling way possible.