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Unsecured Business Loans for Bad Credit

Updated on November 1, 2010

Unsecured Business Loans for Bad Credit

During the course of starting a business, there almost always comes a time where you run into a “cash crunch”, meaning, you need a capital injection to keep the business going and growing. Since cash flow is the lifeblood of any business, once cash flow dries up, it also leaves many businesses high and dry. Oftentimes smaller businesses are “one-man shows”, or only have a handful of people for staffing, and at that stage the business owner’s personal credit history becomes that of the company. In cases like these, fledgling business owners may want to obtain unsecured business loans for bad credit. How easy is this to do? Well, it all depends on which company you’re dealing with. There are quite a few companies out there who provide loans for fairly decent terms, and they are actually used to writing loans that have a higher risk profile. That’s probably the number-one key to obtaining this type of loan is to find a company that knows all of the ramifications of originating higher-risk loans, even with little to no collateral or no options for co-signers. That’s basically the definition of an “unsecured loan”, is a loan where the customer does not have to provide or put up any type of collateral to “secure” the loan, so to speak. If you think about it, a person who borrows money without giving the lender anything he can take if the borrower defaults is automatically a much riskier bet than someone who has a certain amount of tangible assets such as property, business equipment, or other types of hard assets that can be used and valued for collateral. For the lender, this is a fairly significant bet, and therefore the terms will reflect that. For this reason unsecured loans are normally offered at significantly higher interest rates, and for much more stringent terms. Although many lenders are aggressive and flexible, we should never make the mistake of thinking that anyone is going to give us a “free ride”, so to speak.

Image courtesy of Microsoft Office Clip Art
Image courtesy of Microsoft Office Clip Art

Unsecured Business Loans: Available Options

Many companies that offer unsecured business loans for bad credit understand the importance of having a good credit score (i.e., normally above 650), and they realize that having a credit score that’s been “all wrecked up” due to missed or late payments can really sabotage the average business owner’s chance of obtaining a loan the traditional way, i.e., banks. Small or upstart business owners are used to jumping through endless hoops just to prove that they will be able to repay a loan, and the stringent requirements that most banks put on the table can literally slam the door in most business owners’ faces. The old cliché really takes effect where this is concerned…you almost have to prove that you don’t even need the money before the banks will lend it to you. Many lenders who offer unsecured business loans normally have a cap on the amount of money they will lend—most will not go over a limit within the $100K to $250K range. You may wonder how or why lenders are able to take such risks; it’s primarily due to the way the deal is structured. Most companies offering loans of this type are actually offering cash advances, based on the cash flow potential of your business. A lot of these types of companies use your revenue collected from credit card sales as your method of paying them back. What this means is, for instance, if you own a restaurant and you do a decent volume of credit card sales every month (in the $4,000 to $8,000 range or thereabouts), these loan companies will use these credit card sales as the means of repayment. They will normally install their own credit card processing machines that shave off a little bit of money from each sale as their repayment, normally a percentage of the total sale. This enables the restaurant owner to use his food sales as a means of repayment, which works well for businesses that have a good amount of cash flow, but may need a larger capital injection for possible equipment purchases to further production, or to help with repairs in case a piece of equipment breaks. Let me make a distinction here just for clarity…many of the companies that offer unsecured business loans for bad credit are actually offering the alternative known as a business cash advance, which is what I have explained above. Sadly, many times the door will be shut on a business owner and he/she will be prevented from obtaining an unsecured loan if their credit score is not up to par. So it is important, as with any other business transaction, to definitely read the fine print before committing to any contractual agreement with any company offering these types of financial products.


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