Borrowing for Your Small Business

Unsecured Loans

An unsecured loan is issued on the basis of your credit rating only. Since the lender doesn't have a claim to any of your assets if you should default on the loan, this is a riskier proposition for the lender than a secured loan. So, you can assume that the interest rate is going to be much higher.

Unsecured lines of credit at banks and credit unions give you access to approximately $500 to $25,000 by writing a check. The amount you qualify for depends on your income and credit rating. Most unsecured loans have a fixed rate of interest with generally two to five years to repay. Late payment penalties and annual fees can be high, so be sure you know what you are getting into before you sign.

Credit cards are a common type of unsecured loan but be very careful to use credit cards as a source of funds for borrowing. Rates are extremely high; and because you are only required to pay a minimum balance each month, debt can mount up very quickly if you are not disciplined. Make sure to only borrow if you have the cash flow to repay the credit card debt within a reasonable timeframe. That means to make regular payments that are much higher than the required minimum monthly payments.

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