About Unsecured Financing

Unsecured financing is the type of financing where collateral is not required as a basis of qualification. Unlike regular loans where you are required to have some form of collateral as lien in case of failure to pay back, with unsecured financing the approval is based on your financial history and credit rating.

Benefits

Unsecured financing does not require personal collateral. This means that even with a lack of assets, you are able to get financing.  This is a perfect solution for business loans.  Unsecured loans are given based on an individual’s credit history. In this case your signature guarantees payment and the bank assumes most of the risk. You are not required to own a home or have a certain amount in your bank balance. Unsecured loans can be accessed quickly, sometimes within a week.

Qualification

To qualify for an unsecured loan, you generally have to have a credit score of above 700. This figure may differ depending on the lending institution, but the higher your credit score (FICO) the better your chances. Your credit utilization should be less than 50 percent to make you a good candidate. If you have poor credit history, you need to improve it before you apply for financing. There are companies that specialize in helping individuals and businesses to secure financing. They are able to match borrowers with the best lending institutions that will meet their needs.

Disadvantages

Unsecured financing is often more expensive than regular financing. They are allotted for a shorter period, but the interest rates can be as high as 25 percent.  The financial institution takes on more risk with the unsecured loans and will therefore ask for higher interest. Before taking an unsecured loan, it is important to make sure that the business will be able to support the payments. This will reduce the chances of being rejected, which could damage your credit rating and hinder your chances of getting a loan in the future.