Unsecured startup loan
Question: I’m not sure whether to acquire an unsecured startup loan or a secured loan. I know there are benefits and drawbacks to both. I opened my restaurant almost two years ago, and have been showing a profit since my sixth month in business. I sold my house and put the proceeds into the restaurant. I’m nearly broke, but I have excellent personal and business credit scores. I rent my restaurant space and my house. I’d like to expand my menu, but I’ll need new kitchen equipment to do it. Is an unsecured startup loan best for me—I really don’t have anything for collateral—or should I apply for a startup loan?
Answer: You’re right about the plusses and minuses to an unsecured startup loan, but in your case, I think the benefits outweigh the drawbacks.
The upside:
• You rent your home and business space, so you have minimal debt.
• You have good personal and business credit.
• That you began showing positive revenue within so short a time bodes well for your ability to pay back an unsecured startup loan.
• Your loan amount will be relatively small.
• The lender will be happy to see you’ve invested your own assets into your restaurant. Lenders don’t want to invest their money into businesses when owners haven’t been confident enough to invest their own. The fact that you have made the investment will make getting an unsecured startup loan much easier for you.
The downside:
• You’ll probably have to pay a higher interest rate for an unsecured startup loan, though it will probably be lower than credit card rates.
• You don’t have any collateral to guarantee a secured loan, so your options are actually more limited than you think.
Don’t let the negatives scare you; your situation is exactly right for an unsecured startup loan. However, you should begin looking into a business line of credit next. You will need it to invest in inventory for special occasions when the restaurant will be especially busy. A business line of credit is also important to have on hand when you have unforeseen expenses, and in the restaurant business, that happens frequently!
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