August 07, 2017

What An Unsecured Loan Means

It requires credit to obtain an unsecured loan, but there are quite a few worthwhile advantages should you not be able to pay it back on time or within initial parameters. For starters, you don’t have to yield assets in collateral.

When it comes to an unsecured business line of credit without personal guarantee, BusinessLineOf.Credit points out that: “Unsecured business loans have a number of advantages over secured loans. You will not have to use…inventory, home, or equipment as collateral.” Common unsecured loans include student loans and credit cards.

What An Unsecured Loan Means: eAskme
What An Unsecured Loan Means: eAskme

This can save your bacon in a pinch, as sometimes you’ll find that the business environment can change very suddenly. 9/11 took the wind from the sales of the housing market, September 2008 crashed the financial market. In both scenarios many businesses suddenly found themselves in hot water, and quick.

With an unsecured business line of credit, should a certain venture fail to return as you had intended, you can renegotiate the terms and pay the loan back another way. This gives you greater flexibility and autonomy. After all, sometimes you get the bear, sometimes the bear gets you.

Planning Accordingly

What An Unsecured Loan Means: eAskme

That said, with any kind of loan you must be careful to plan accordingly. Say you’re taking out a $15,000 loan for some venture and have had the loan put together such that it must be paid back within a year’s time. (Now keep in mind, this is hypothetical; many unsecured loans are for a three year term.

If you’re in such a situation, you only need to make $1,250 in payments on a monthly basis. If the $15k loan were for something like a mobile food preparation vehicle, if you’re savvy about where you park it and sell your wares, you only need to increase sales by an average of $42 a day in order to pay that back on time.

This secured loan calculator on Lending Expert will help you to do the calculation.

Read More: Personal Loans – What You Should Know Before Settling for Debt Consolidation

Still, once you’ve got the loan paid off, it’s as though you were a piece of detritus in a slingshot. The period of the payback was the elastic on the sling being pulled back. When you’ve paid it off, your business is the stone that’s been released and can soar.

The greater the elasticity on the sling, the further the business can soar once released from the obligations of the loan. The key is getting to a point where you no longer require a line of credit. That being said, a business line of credit can be integral when you’re starting up your business.

Read More: Debt Consolidation vs. Refinancing

If you look at your line of credit as an infrastructural overhead cost, then plot out a payback scheme which allows you to operate with greater capital than otherwise possible over a period of time, you really could fly quite high on the momentum from that additional financial influx.

Hitting Your Target

What An Unsecured Loan Means: eAskme
Here’s where the analogy takes a somewhat negative turn: if you pull too hard on that sling, you will snap the elastic. So the question becomes: how do you tell how hard you can push it? Simple: start small, and work your way up. It’s just like a marksman using such a sling to hit a target.

Read More: Too Much Business Debt

The marksman will have to hit several targets that are nearby to learn how the weapon works. Once he’s got it figured out, he can take shots at targets further and further away, while continuing to understand where his limits are.

With an unsecured loan, if the elastic snaps, you could possibly afford to put new elastic on the slingshot and start firing again. With other loans, your marksman days could be over.