As a business owner, sometimes extra money is hard to come by. And if your business isn’t able to qualify for a regular loan, it’s always helpful to have other options in mind.
By way of illustration, unsecured business loans and business credit cards are valid alternatives for funding. They’re especially attractive to small business owners who don’t want to put up collateral, like buildings, land, or equipment they own.
You may be wondering which of these two options you should get. There are many financial institutions, like Camino Financial, that’ll help understand the similarities, differences, and benefits of each type of funding. Let’s get a deeper understanding of the two with an example.
Funding can help any business grow
Michael started his online marketing agency working from home. Within a year, his client list grew from 2 to 8 companies. He also generated revenue by hosting webinars, having a podcast, and writing guest blogs.
He knew that by moving to an office in a high-traffic area, he would gain exposure to new clients. Because clients come and go in this type of work, he needed to advertise his skills so clients would notice him in a highly competitive market.
But a robust advertising campaign would cost Michael thousands of dollars to implement, along with the cost to rent office complex space.
He didn’t quite have the money to make it happen.
He knew lenders require some type of collateral to secure a small business loan, and he didn’t own a building, inventory or a company vehicle. But he also knew that he could apply for an unsecured business loan or a business credit card.
So he weighed the pros and cons of each type of funding.
Unsecured Business Loans: cash and no collateral
A big plus to consider when getting an unsecured business loan is that lenders don’t require collateral to secure the loan. However, that means lenders charge high-interest rates because they assume more risk.
Lenders normally require borrowers to have credit scores in the range of 660+ and adequate cash flow to cover loan payments.
Depending on the lender, loans can be processed within days or weeks.
Likewise, a borrower may need to meet other criteria such as how long they’ve been in business and how much revenue the business generates.
Business Credit Cards: money whenever you need
With this option, a business credit card provides short-term funding to improve cash flow. Business owners use the money as a revolving line of credit by withdrawing cash advances and repaying what’s due each month.
Creditors usually charge an APR between 12% – 22% or more.
When using a business credit card, you can incur other charges like over limit, cash advance or annual fees. If you already overspend, this funding option is risky.
Michael decided to apply for an unsecured business loan for $15,000
He knew he had the cash flow to repay the loan comfortably. By having access to additional cash fairly quickly, he implements his business expansion plans.
After a few months, he’s settled in his new location and was able to get more clients through a very savvy marketing campaign.
Getting an unsecured business loan was a good match for Michael’s marketing agency.
A new, very big client located near his office contracted his marketing services for a project that will last for 2-4 years.
Find funding that works for you
Maybe you’re in a similar situation and don’t know whether to get an unsecured business loan or a business credit card. By taking an in-depth look at their differences, you can determine what’s best for your business. Both business loan options come with advantages and disadvantages.
Regardless of which option seems better, you get to choose how to grow your business. You can launch a new product, purchase new equipment or streamline your operations to produce more revenue.
So, what do you think? Which option makes sense for your business?