Unsecured business funding refers to loan products that are not backed (i.e. secured) by assigned collateral, such as equipment, properties, vehicles, mortgages, and so on.
Many borrowers – particularly small and mid-sized business owners – prefer unsecured business funding. This is because they either don’t have enough business or personal assets, or because they don’t want to have their assets under-valued; which is something that banks are notorious for doing. For example, a piece of industrial equipment that has a fair market value of $50,000 will likely be valued at around $30,000 by banks. Borrowers who balk at this lowball evaluation are basically told to take it or leave it. Banks also aren’t a viable option if you need business funding fast for unexpected expenses.
Frankly, banks don’t want to take ownership of secured collateral. That’s not their intent with the low evaluation practice. Rather, they want to “over protect” themselves in the event of default, and ensure that no matter what happens, they end up turning a profit; ideally by having a borrower fulfill all loan obligations, but if necessary, taking ownership of assets and then liquidating them.
And so, now that you know why many borrowers prefer unsecured business funding vs. secured business funding, the next question is: What are your unsecured loan options? Below, we highlight 3 possibilities.
Purchase Order Financing
Purchase order financing is when you essentially sell a purchase order to a lender, in return for cash – usually about 80% of the purchase order’s value. The lender gets paid directly by your customer when the invoice is due, keeps the principal, interest and fees, and sends you whatever may be left over (usually little or nothing).
There are some major drawbacks of purchase order funding that you should be aware of BEFORE you move ahead with this option – including that the loan period is very short (e.g. usually 90 days maximum), and your customers will be dealing with a third party instead of directly with you.
Some businesses are heading online to drum up business funding on peer-to-peer platforms. While this can work for some businesses, frankly it’s not really a viable option for most – because competition is ferocious, and individual funding amounts are typically small (< $200), which means that it can take months to generate the funding that most businesses need.
Working Capital Loans
At Mulligan Funding, our working capital loans have reasonable and realistic repayment terms (up to a year), and our clients receive 100% of the cash within days of approval. We also welcome clients with less-than-great credit, and startups with a few months of credit history.
Call Mulligan Funding at 855-326-3564 to discuss your financing options today!