A savvy business owner will know that finance is the key to business. You have to spend money to make money, and that is true no matter how large your business is.
While most business owners tend to stay away from seeking outside finances, it is often a necessity that cannot be avoided. Applying for a business loan can often be quite a hassle and may not be feasible in your current situation. An unsecured business loan might be what you need.
The article “Unsecured business loans vs. business credit cards” by Camino Financial will help you learn more about these two great financial tools that could help move your business forward. Knowing how to obtain and utilize them is a great tool that all business owners should be aware of.
What is an unsecured business loan?
To put it simply, an unsecured business loan is one in which the applicant does not have to put up collateral (something that the lenders can liquidate if the loan is not repaid).
This is obviously a very good benefit, as collateral is just an added cost to the business.
Of course, there are certain benefits of a normal business loan that are not present in an unsecured one. Unsecured business loans come with less favorable interest rates and have a higher annual rate than secured business loans.
This type of loan is typically funded more quickly though, which is handy if you are in a pinch.
What is a business credit card?
Just like it sounds, a business credit card is simply a credit card granted to a business from a lender to utilize when they see fit.
These typically have higher lines of credit, but still, they have some of the same stipulations as a regular credit card. They allow you to earn rewards and build credit.
However, they also tend to have higher interest rates and not paying them in a timely manner could have serious consequences for your business and its credit.
How do unsecured business loans and business credit cards look in the real world?
So how would these options look in the real world?
● Don’t let problems stop your business
First let’s take a hypothetical business owner, Sandra Sanchez, who falls victim to a wildfire that decimates her café.
She could go through the process of applying for a business loan the traditional way, but every day she doesn’t have a store she doesn’t have revenue. She needs money as soon as possible.
She decides to go after an unsecured business loan in order to get capital for a new storefront fast. Sanchez figures that with the revenue projections and current profits she had, she will be able to pay back the unsecured business loan quickly to avoid higher annual rates.
While she doesn’t have enough capital to use as collateral, she is confident that she sill be able to pay back the loan. In less than two years she makes enough earnings and growth in order to pay back the loan.
● Monthly expenses can add up
Victor Johnson, on the other hand, owns a plumbing business and has noticed that he often ends up paying monthly for inventory and equipment needed to do the job.
He decides that he will get a business credit card so he can use those payments to build credit and earn rewards. He signs up for his business credit card and ensures that all of his payments are made on time.
He now has built his business’s credit score and has earned better interest rates as a reward for his timely payments, saving him money in the long run.
These are simplified accounts, but they perfectly describe how different both options are and what they can be used for.
If you’ve ever found yourself in a similar situation you should research these two options to be better prepared for anything your business faces.