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!
Travel loans can take you home for the holidays
It’s holiday time, and that means time for families and friends to gather from far flung locales. Unfortunately, the airlines just announced they’ll be charging an additional $30 per ticket for holiday travel on top of booking and luggage fees. If you’re worried that you might not have enough cash in the bank after you buy gifts for the kids, you should look into travel loans.
Travel loans are typically unsecured personal loans. Their interest rates are usually higher than secured loans, but lower than credit card interest rates. If you have good credit, you may be able to find travel loans with interest rates as low as 6%. Read more
The difference between a secured loan and an unsecured loan
Paper or plastic? Decaf or caffeinated? Secured or unsecured? If you’re looking for a loan, but don’t know whether you need a secured loan or an unsecured loan, this is your chance to figure it all out.
The primary difference between a secured and an unsecured loan is whether or not the borrower has to put up collateral to secure the loan. For a secured loan, a lender will insist on collateral to minimize their risk. An auto loan, for instance, is secured by the car itself; the lender simply repossesses the car if the borrower fails to make payments on the loan.
On the other hand, an unsecured loan is one without collateral. When obtaining an unsecured loan, the borrower doesn’t have to specify its intended use, and it can be used for just about anything. For instance, an unsecured loan can be used for something as prosaic as debt consolidation, as pleasant as a vacation, or as essential as an emergency medical procedure.
Accordingly, because the lender can’t repossess a week in Hawaii, a zero-balance credit card or the stitches in a toddler’s forehead, the interest rate on an unsecured loan is higher than on a secured loan, reflecting the lender’s greater risk exposure.
However, the interest on an unsecured loan is usually lower than on credit cards, and is certainly lower than the interest rate charged for credit card cash advances. As an added benefit, an unsecured loan almost always comes with a fixed interest rate and carries no annual fee.
