Unsecured Commercial Loans for Expanding Your Small Business

Unsecured commercial loans can help you start or expand your business. Unsecured is a term used to describe a loan made without collateral. These loans will have higher interest rates, but they also have several key advantages over secured loans. These advantages include a lower risk to the borrower, a greater affect on your credit score, and more flexibility with the funds. 

Low Risk of Unsecured Loans

When you do not place collateral for a loan, the lender is assuming close to 100% of the risk on the loan. A default will still cost you financially. You will have a drop in credit score, and you may be subject to some legal actions to recover the funds. However, ultimately, you are not risking any of your assets in order to secure the loan. The lender has no guarantee it will recover any lost funds with the loan. If you are starting your business, this can protect you personally from losses associated with the business failure. When you secure a loan with a personal asset, such as a home or car, you stand to lose personally if your business fails. Many business owners make this mistake early on. 

Building Business Credit

High risk loans have a greater affect on your credit score than low risk loans. This goes both ways; if you default, you will see financially detrimental problems for your business credit. However, if you make your payments and pay off the loan on time, your business credit score will receive a tremendous boost from the loan. With a new business, this is a quick step to financial freedom for the business. While your first loan will typically require your personal name and credit information, the next loan you take can be extended 100% based on the business's good credit history. The sooner you build a positive balance sheet and good credit for your business, the sooner you can limit your personal exposures to risk.  

Flexible Use for Commercial Loans

Commercial loans can be applied to a number of purchases. An unsecured loan is even more flexible than a secured loan. For example, a secured loan against a new computer server will often use the server itself as collateral. You will be limited in the amount you can borrow; essentially, you will only receive the funds to purchase the server itself. When you have an unsecured loan, you get purchase any item necessary up to the loan limit. Your lender may place a few restrictions, but typically these just assure you are using the money to invest in items for the business and not yourself. You can buy a server, two new computers and a desk all with one loan. Commercial loans can also be used to purchase land, machinery and build websites, to name a few items.