Unsecured Business LoansAll you need to know about small business funding in Canada.
Unsecured business loans are some of the most popular loan products in Canada available today. However, because it is not secured with some sort of tangible property that the lender can resell if you default, the risk that the lender assumes in providing these loans is high.
Secured vs. Unsecured
A secured business loan is one in which you are required to put up some form of collateral on the money you borrow, such as a stake in your company, your equipment, or even your building. This way, if you default on the loan, the lender can repossess your collateral and sell it in order to cover the amount of the loan. This makes the interest rates on secured loans lower, and it also means that people with less-than- perfect credit have a decent chance of obtaining them.
On the other hand, there is no collateral involved in an unsecured loan. If you default on your payments, the lender has no other alternative than to take legal action against you and attempt to recoup its money in court. This means that the lender assumes a much greater risk with an unsecured loan, and the guidelines required for obtaining them are much more difficult to meet. You will likely need excellent credit and a well-established business in order to qualify.
How to Get an Unsecured Business Loan
There are several things you will need to do in order to qualify for an unsecured business loan.
You will need good to excellent credit. There is a great deal of risk involved to the lender, so it is absolutely necessary to prove your creditworthiness.
You need to come up with a solid business plan. If you can show the lender how the loan will help you generate more revenue, you stand a much better chance at getting approved.
You might need to agree to a high interest rate. Because lenders have no property to sell if you default, they will often charge a higher interest rate to those who choose unsecured business loans.
You will need to open a business bank account. No matter what type of business you run or what type of business loan you wish to obtain, having a business bank account is required. When your loan application is approved, your lender will need to deposit your funds directly into your business account.
Getting the Best Deal on an Unsecured Loan
If you think you qualify for an unsecured loan, your best course of action is to shop around at several different banks and lenders. Believe it or not, you might get a better offer from a big-name bank across town than from the bank you’ve done business with for the last decade. Make sure that you gather all of your paperwork (including your credit report) and bring it with you when you meet with the loan officer.
Although unsecured business loans are some of the most popular products out there, they do come with some disadvantages. Aside from the high interest rates, these products are not good ways to get your hands on some fast cash for emergencies. In fact, much like a mortgage, an unsecured business loan must often go through an extensive underwriting process that can take an average of 30 days to complete.
Unsecured business loans are excellent options for business owners with good credit who need access to a lump sum of money. While they do take time to process and they often come with higher interest rates, all you need is a good credit report and a solid business plan to qualify.
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