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As you get ready to start or grow your business, you’ll need access to liquid capital. A great way to achieve this is to take out an unsecured business loan. If you’re new to this type of lending, we’re going to share some pros and cons that can assist you in determining whether a business loan is right for your business.

You Don’t Have to Put Up Collateral

Probably the most obvious benefit of an unsecured small business loan is that you don’t have to put up any of your assets as collateral to be approved for the loan. An unsecured loan is one where you’re given the funding without having to put up any personal or business assets as collateral. This means you will have no risk of losing your business’s assets in the event that you’re unable to repay the loan.

Quicker Loan Processing

When you have your legal documentation on hand, you can easily apply for an unsecured business loan online. These loans tend to require minimal documentation, which means less time spent by the lender verifying your financial documents. Additionally, with no collateral, the lender won’t have to get an appraisal of any assets performed before approving the loan. This means more streamlined loan processing with unsecured business loans.

Higher Interest Rates

According to Lantern by SoFi, “Different lenders often have their own eligibility requirements, such as annual revenue and time in business minimums.” Those who can provide a large amount of revenue compared to the funds they’re requesting are more likely to receive a lower interest rate than others. However, it’s crucial to note that unsecured business loans tend to have higher interest rates than secured business loans. This is simply due to the fact that unsecured loans are riskier than secured loans because there is no collateral to obtain in the event of defaulting on the loan.

Shorter Term Lengths

Another drawback of small business loans is that they’re typically offered with short-term lengths. The maximum term you’re likely going to find for an unsecured business loan is five years. Due to the increased risk of default with secured loans compared to unsecured loans, lenders want to mitigate that risk of only tying up their funds for a short period of time.

Smaller Loan Amounts

Due to the riskier nature of unsecured business loans, it’s not uncommon for financial institutions to lower the maximum loan amount that they offer. Essentially, you may only be approved for $50,000 as compared to $500,000 with a secured business loan. Depending on what you’re going to be using the financing for, you may be okay with a smaller loan amount over a smaller term length.

Unsecured business loans are a typical favorite for small business owners who are looking for short-term financing options for small amounts of money. While they do come with some cons, unsecured business loans are still a viable option for businesses looking to get off of the ground or expand going into the future.

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