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Disadvantages of Unsecured Business Loans

Most entrepreneurs want to cast a wide net when applying for loans. Traditional bank loans, secured business loans or unsecured business loans… these are all valid questions that small business owners often consider when seeking funding.

Before you make your final decision about which loan option is the best for you, here are some things to keep in mind about unsecured loans.

1. High Interest Rates

Unsecured loans are more of a risk for the lender, which means that interest rates are almost always higher than they are for traditional loans from the Small Business Administration. Borrowers with bad credit will be compelled to accept an especially high interest rate.

2. Little Flexibility

When taking out an unsecured loan, you generally make an agreement with the lending group about the repayment method—how often, how much, for how long, etc. However, if, for whatever reason, you want to pay off the loan by an earlier date, you will generally have to pay an early repayment fine.

3. Limited Amounts

Unsecured loans generally do not offer a substantial amount of money to borrowers. If the amount of money you require for your small business exceeds $40,000 or so, you will not have much luck applying for an unsecured loan.

This article was originally published by Biz2Credit

Published: February 6, 2014
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