There are times when a businessman may need money in a hurry. Regular channels may not be the best option due to one reason or another because they all ask for security or collateral against any money they advance. A businessman may have mortgaged his properties and assets and may not have any further collateral to offer. He may not wish to mortgage his house. In such situations the best way out is to opt for unsecured sources of funding. These are not without pitfalls and every merchant should know about this type of funding.

You do not need to furnish a reason to be eligible

A bank may ask for a project report or a reason why merchants wish to borrow money. When one opts for unsecured business loans the lenders do not usually ask borrowers the purpose. One can borrow money to pay off vendors, pay salaries, finance expansion activities or buy equipments.

No need for collateral

One thing to know about unsecured business loans and what makes them so attractive is tht borrower need not furnish any collateral or guarantee. Only his personal identity papers, proof of residence and proof of ownership of business along with recent bank statement are sufficient to make him eligible to loans that can go up to $ 200000.

Interest rate could be high

Lenders know it is a risky proposition and unsecured funding operates more on trust and faith in the borrower to repay in full and in time. Interest rates are usually high, ranging from 20% to as much as 50% depending on the assessment of lenders. It depends on the financial health of the borrower and it also depends on the lender. Considerate lenders offer unsecured funding for small business on favorable terms with a view to encouraging growth and revenues.

Credit rating plays a role

If a borrower has a healthy credit score he can expect to be charged a lower rate of interest. Borderline or poor credit score hovering around or below 500 could mean a higher rate of interest on unsecured borrowing because of higher perceived risk. It always pays for a merchant to maintain a healthy credit history in order to bargain for the best terms.

Turnover matters

Lenders will assess borrowers and their business turnover. If revenues are flowing in a steady stream, lenders know that repayment is assured and they will modify terms accordingly to suit borrowers. If a merchant obtains this type of unsecured cash for the purpose of expansion of business or to launch campaigns that will enhance revenues he knows he can repay the money without affecting cash flows. If he borrows to simply repay debt he could get into deeper debt. A healthy turnover and an increasing turnover makes repayment easy.

One must seek the right source for unsecured funding because lenders vary and so do their terms. Some may ask for processing fees and levy other charges besides a high APR. Others may offer more reasonable terms and waive such application fees. They are the ones to choose. 

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