In order to thrive, every business needs to grow continuously. Businesses that remain stagnant for too long are destined to fail. However, in order to grow, businesses need money that’ll help them pursue new ventures.
One obstacle that many business owners face when searching for business loans is being required to put up collateral. Collateral is when businesses offer valuable assets in order to protect the lender in case they are not able to pay back the loan.
If you don’t have valuable assets available to put up as collateral, you still have options.
Unsecured business loans and business credit cards can both be great solutions for business owners who would prefer to avoid collateral. But these two options are very different, though, so which one should you use?
Let’s take a more in-depth look into them.
Whereas secured business loans are simply loans that require collateral, unsecured business loans are, naturally, the opposite: they do not require it. However, there are a few strings attached.
As a business owner, if you choose to pursue an unsecured business loan as opposed to a business credit card for financing, you’ll be subjected to a few advantages and disadvantages.
As we have mentioned, unsecured business loans have one primary advantage: no collateral.
Not having to put up collateral gives your business a little bit of financial flexibility and protects you from losing assets in case you do end up defaulting on the loan.
Moreover, unsecured loans often have higher credit limits as secured loan amounts are usually a percentage of the value of the collateral being used.
Other benefits include:
- Easy application process due to not having to itemize assets
- Fast approval times
- Dischargeable debt
On the other side, unsecured business loans usually have higher interest rates as lenders take on more risk with unsecured loans. Additionally, you’ll likely be required to have exceptional credit. Again, this is because lenders take on more risk when they offer loans without collateral.
Business credit cards are very similar to your personal credit card. As such, you’re probably very familiar with the benefits and disadvantages of owning one. They offer easy access to funds with rewards and high-interest rates.
If you decide to opt for a business credit card instead of an unsecured loan, here are the pros and cons that you can expect to experience.
First, business credit cards are easy to get approved for and offer very high credit limits compared to regular credit cards. Revolving credit means that you can access money whenever you need it on an ongoing basis, making business credit cards ideal for covering any unexpected expenses.
Additionally, like regular credit cards, business cards still offer rewards like cash back for you to take advantage of.
Lastly, business credit cards can be used for absolutely any business expense whereas some loans might have spending restrictions.
Now let’s take a look to the other side of the coin: you should be aware that business credit cards can have exceptionally high APRs, even compared to unsecured business loans. APRs can be as high as 25%.
Credit cards often also charge annual fees, over limit fees and other charges that can add up.
However, as long as you spend responsibly, many of these drawbacks can be avoided, making credit cards an excellent alternative to secured loans.
Have you ever wondered if there were any alternatives to secured business loans?
Have you ever needed money but realized a regular loan was not right for you?
Now you know you have more options to help your business grow and get to the next level, so don’t waste any more time, today is the day to reach success.
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