HOW UNSECURED LOANS WORK (and when you should get one)

When you need to borrow money. You generally have 2 options: secured or unsecured loans (BONUS: 3rd option = establishing your business credit ? but we'll delve into that a different day).

A secured loan is when you put up an asset like a vehicle, inventory, equipment, real estate, meaning the lender can seize that asset if you fail to repay the loans.

An unsecured loan, on the other hand, requires no collateral – provides lots of opportunities but it has some downsides.

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Let’s dive in! ??

OK SO WHAT’S AN UNSECURED LOAN?

?With these, lenders approve you based on your creditworthiness and income rather than the assets you own or monthly revenue of the business. So basically, you’re gonna show them how you get paid. (paystubs if employed by another company. If self-employed, they’ll wanna see personal and business taxes).

?Examples of unsecured lending: credit cards and personal loans

?This type of funding is #unsecured #alternate #funding for your business unlike an MCA where you’d should your bank statements and the loan is based of that.

?And tip: remember MCAs are gonna cost you more in interest, they’re expensive, and you’ll either pay daily, weekly or monthly payments.

With these unsecured loans, YOU HAVE to SHOW the lenders that you have the money to pay your everyday living expenses (your bills, groceries, car payments, etc), and still be able to keep up with your loan payments as well.

?We Had a Client seeking funding. He had 678. 60% of his credit profile was less than 6 months old, within that time, he had multiple inquiries, 2 car loans and 2 new bank cards. So 5 new accounts with a profile less than 6 months old, with 6 in that timeframe.

Up until that point, he’d never really used credit. But what did it look like to our lender: that he was shopping around for credit.

So why does that look bad = the age of the credit profile was small, and lenders want to see age on there, right? Not to mention, the cards (which were not even 30 days old) were almost maxxed out. The lenders saw that as irresponsible spending/high risk spending. I remember our conversations clearly.

The lender equated it to: “it’d be like me giving you a check for 500 and then you go and spend it all in one day. And now you’re coming back and asking for more with a new 90k Mercedes 2 new bank cards, one with a balance of ?91k; another with 56k , both opened in the last few months."

Now at the time, they couldn’t extend the offer but we came up with a plan to not do anymore inquiries, ?keep the Wells Fargo card paid down and reapply in 3 months.

GUYS! You have to be smart and when you find out you’re hitting a wall – STOP! Otherwise, what the next logical result?

You’re gonna keep blindly applying, they’re gonna say “oh sure we can do this,”

THEN BOOM! SLAP ON SOME INQUIRIES – and you’re screwed! Because lenders are like thinking, “oh here, she goes shopping around some more.”

So guys, please – you have to show consistency.

Here’s another one- we had one Guy, a musician in the industry. He had a 2Million dollar house with no active credit. He’s was getting 600k a month in royalties. It didn’t matter. My underwriter’s ?have NFL and NBA players come to them all the time and you know what she says, “ you wanna borrow money…especially somebody else’s money, you gotta show you can pay.”

But on the FLIPSIDE: we had another client in real estate who was pre-approved. He had an open installment (a mortgage) and a good mix of revolving bank cards. He had a solid history with good score, minimal inquiries (2 within 6 months).

He pre-approved for up to 125k!

WHAT ARE THE INTEREST RATES AND TERMS

?That's determined in your pre-approval process. We get you on the phone with your account manager. Once we get your application in, ALONG with the appropriate documents, your dedicated account manager figures out the numbers and answers all your questions, at the same time.

THE BIGGEST ADVANTAGE:

You don’t have to risk any of your property or assets to get the money you need.

The downside: typically higher rates than secures loans to offset the increase risk for the lender.

But ask your self,

"Is a HELOC really right for me? Do I really want to put up MY HOUSE?!"

I know, sometimes we think, other than putting your house up what other option do you have? But I'm here to tell you....you have options.

Some people settle for that because they’ve got their mind on the interest payments.

?But what if the business fails? What are you gonna do? You gonna lose your house?

That’s why unsecured funding is great because the bank takes all the risk.

Downside: It just ruins your credit. Unsecured funding is considered riskier because the lender takes the risk not you.

These are unsecured loans with no prepayment penalty. AND they (the lenders) can add zero percent business cards.

So if you want to maximize cash now then personal unsecured loans with no prepayment penalty may be an option for you.

?

LET’S RECAP: WHEN DOES IT MAKE SENSE TO GET AN UNSECURED LOAN?

You have good credit (it’s not just about the score, which should be at least 680, it’s WAY more about the profile).

You don’t want to risk assets.

You need flexibility

?

HOW DO YOU GET ONE?

Submit your application – lenders will check your credit report, score, income, outstanding debts and overall financial situation before deciding whether to approve you and at what interest rate.

Overall, unsecured loans offer flexibility and convenience for borrowers with solid credit histories. /just make sure you understand the costs over the full term and have a PLAN to repay the debt.

By weighting your options, you can decide if an unsecured loan I the right choice for your situation. ??

?? Funding Planning Session: https://plan.dominofxgroup.com/

RESOURCES:

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??TIME TO GET SERIOUS: ??

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If you have benefitted from the technical assistance provided by Sacramento Valley SBDC and believe in what they do, it's TIME TO RALLY THE TROOPS! Show your opposition to this cut by completing this online form that will send a letter?to the California Senate and Assembly Budget Committee. #supportsmallbusiness #bettertogether #smallbusinessisvital #breakingbarriers #blackowned #womanowned #femalefounders #sacramento

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