The process of obtaining
unsecured business loans is much easier than getting other types of
loans. This is primarily because this method (like paying by credit
card) does not require collateral. Thus, many people who avail of
these loans are those who are starting up small businesses. In this
type of loan, the amount of money a person can borrow and the
interest rates he will get depends on his credit score.
Unlike secured business
loans, collateral—
which comes in the form of existing properties such as houses and
cars—
are not tied to the agreement. This is a big relief to borrowers who
are more worried about what could happen to their collateral if a
default occurs before the loan is fully paid.
The risk-free nature of
unsecured small business loans, however, is made possible because it
has higher interest rates than secured loans. Without any assets to
hold on to in case the borrower fails to completely pay up his loans,
a lender's incentive for giving unsecured loans lies on the
competitive interest rates.
As with secured loans, a
borrower has to maintain a good credit standing to score an
attractive unsecured deal with a lender. After all, every lender will
be much more willing to shell out money for people who have a history
of paying back in a timely and regular manner.
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