Factors to Consider Before Applying for Unsecured Business Funding

In one time or the other, you may find that you need to boost your business. During this time the most important thing to consider is going to a financial institution such as a bank to request for funding. Banks or other lenders will either consider giving you a secured or unsecured form of funding for your business. So, before you approach your potential lender, you have to put come factors into considerations to ensure that you get the best results. If the lender is willing to provide you with unsecured business funding, it is good for you because you do not need to provide collateral to secure your funding. However, you need to note that once you sign on the contract after the grace period given, there is no point of turning back. This means that you must stick to the agreement that you have made, meaning that if you are unable to repay, you will be in great trouble. Here are some of the factors you must look for carefully before appending your signature to the unsecured funding for your business.

Interest rate

It is good to note that unsecured funding comes with high interest rates. This is because your lender does not have any collateral to secure your loan. It is your signature and your credit history that act as the guarantee that you will be able to pay the money back. This means that the lender takes high risks in providing you with the funding, thus making the interest rates to be higher. Only sign for the funding if you are comfortable with the high interest rate in unsecured funding compared to the secured ones. However, due to the fact that you may not have any collateral to provide, you may end up taking the unsecured finding and incur the high rates of interest because you do not have any other option.

Repayment period

The fact that you have not secured your funding makes it to have shorter repayments period compared to the secured funding. You have to put this factor into consideration and consider whether you have the ability to make the repayments as stipulated in the contract. In most cases, you will be required to make monthly payments failure to which your credit history and reputation with your lender will be affected negatively. This may deny you opportunity to get funding in the future. So, you have to ensure that you get the amount that you will be able to pay comfortably.

Hidden charges

One of the big mistakes that many people make when talking the unsecured funding is failure to check whether there are some hidden charges that may add to the cost of the business funding. To avoid this mistake, ensure that you read the fine print clearly before you finalize the deal. There might be some charges that you are not aware of which may make the cost of the funding go higher that you expect. You have to check for such things as penalties, repayment fees, arrangement charges and others, so that you be clear what you are getting and what is expected of you.