Comparing SBA Loans With Unsecured Small Business Loans

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Wednesday, April 10th, 2013

There are many reasons why a business may need financing. For example, with the spring weather finally appearing, a landscape company may find the need to rent/purchase new equipment or stock up on supplies in order to conduct business. Without these purchases, revenue may be lost as customers can not be serviced. This is often a time when a business owner will consider obtaining financing. 

Most business owners know that they can apply for financing through the Small Business Administration (SBA). Fewer business owners know that there are alternative financing options which may be available to them. Let’s take a look.

SBA Loans vs. Unsecured Small Business Loans

The SBA has an affiliation with the government and a long history of guaranteeing loans. This alone leads many business owners to utilize their service. However, as with any business decision, it is important to understand who you are doing business with. The SBA is not a lender. Their role is to guarantee a loan that is underwritten by a bank. The SBA needs to funnel loan applications to the bank and the bank needs to approve loans for the SBA. Meaning that the customers interest are not always put first in their pursuit to do business. In fact, the recent Coleman Report shows that 1 in 10 recipients of an SBA loan defaults. Why? Because business was done between the SBA and the bank even though the terms of the loan were not in the customer’s best interest. The bank now owns the customer’s business, home, car, etc. 

So why are business owners attracted to SBA loans? The answer may be that it has been instilled as the acceptable practice. That and the low interest rate. Don’t be fooled by a low rate though, once the numerous fees are added in, the cost of the loan is substantially higher. Also, the approval process for an SBA loan may take weeks to months during which time the business can be missing out on revenue opportunities.

Unsecured financing is a newer option. The first benefit can be seen right in the name. Unsecured. There is no risk of losing your business, home, or car. Whew! That’s one worry no business owner needs! The second benefit is how quickly unsecured small business loans may be approved. Most loans are approved within 24 to 48 hours allowing business to continue and revenue to come in. 

Unsecured, fast approval; why doesn’t every business owner use this option? Many are scared off because the APR is higher than a traditional SBA loan. However, refer back a few paragraphs and you will see that the cost of loans are truly in the same ballpark. 

Another factor to consider is the amount of time spent on the application process. The SBA loans require massive amounts of forms to be completed and documentation to be supplied. This is time that the business owner could be working his business and earning income. Conversely, unsecured financing requires a 1 – 2 page application and 3 – 6 months of business bank statements. This can be quickly completed and the business owner is back to work!

If you are in need of financing for your business, take a few moments to speak with a business consultant at National Business Capital. Learn more about unsecured financing and unsecured small business loans and how it can benefit you!

 

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