When it comes to loans agreement you may have in mind an unsecured agreement. This is a good option for the people who have a good credit history. Agreements of this kind can be offered to businesses and individuals as well but usually small businesses use them.
Although this seems like a great possibility, it could become quite difficult to secure. First of all, an unsecured agreement means that there is no collateral that would guarantee for the loan. As a result the lender gets in a difficult situation because it is possible that he will never get his money back if the borrower declares bankruptcy.
The other aspect that you have to consider is that the agreements of this kind are usually offered by banks. These are the most conservative players on the loans’ market.
If you need some money, you will find it at the lowest price at banks. This happens because the CEO of the banks has to answer to the stockholders, unless it is a private bank. In the majority of the cases the stockholders prefer the banks to lend to people who will be able to pay the loans back, even if they make a smaller profit.
In the same time the bank is responsible for the money of the depositors. Contrary to a lending company who is willing to offer risky credits for higher profits, in this case the hands of the bank are tied because it has to ensure the safety of the depositors’ money.
The unsecured loan
This is considered to be a risky operation and so it is offered only to those who are sure to be able to pay the money back. The credit rates in this case can be as low as 9%. Naturally the rates vary from one case to the other. This means that the rates can increase in case of unfavorable economic situations.
What do you need?
Although a good credit history is important to get a loan, there are some other requirements as well. The borrower shouldn’t have too much debt compared to the incomes that he has. Even if the borrower can pay the payments in time, if these represent 35%-40% of his income, most probably he won’t get the loan.
There are a lot of different reasons for which a small business might need an unsecured loan. For instance it might have cash needs.