Hey everybody this is Tom from LenCred.
We are having fun answering some of your questions, so thanks for sending your questions in. This next one is a pretty big question we get a lot. The question comes in from Summer. Summer asks,”What are the unsecured small business loan rates?”
Summer that is a great question and so lets talk about the rates for some of these unsecured business loans and business lines of credit.
I want you to know that there is a big spectrum. The rates can be vary different for everyone person. So normally it is a question that can be better answered after some information is gathered on the applicant.
There are lenders out there that have unsecured loans that can be sometimes below 10% and sometime above 30% to 40%. That is a huge range.
So you have to remember that it is all a function of your qualifications. In order to be in that 6 to 12 percent range, whatever that low tier is. You know you going to want to have some good credit you know.
Depending on the size of the loan, you are going to want to look if you can provide full financials or not. Those kinds of things.
Where as if you do not have good credit. You know you dont have any real financials to show of what the business is doing. Then the chances are you will have to pay for one of those higher cost unsecured products.
That not only have higher rates but, what also changes the game with that is a lot of time they have short pay back periods. We (LenCred) are not a vary big fan of those products.
A lot of times you have to pay them back in 6 months or maybe 9 months.
So remember it is always the function of the rate and the time frame you have to pay something back.
Would you rather pay 8% and pay it back in a year or would you rather pay 12% and pay it back over 3 years? We all know cash flow is king when you are a small business owner.
So remember to weigh those things and say, “hey it might be a little bit better for me to pay a little higher interest rate and have a little more time to pay it back because it lowers my monthly payment.”
Those are all factors you want to consider; so when we are talking about the rates, there is a huge variance between the low end and the high end. One of the things you have to remember is from the marketing perspective. A lot of the online marketing tactics, when they talk about 6 and 7 and 8 percent rates. You are talking about a vary, vary, vary, small percentage of people that can qualify for those lowest rate tiers.
So remember to go into your search looking for what you can qualify for based on what you can give a lender. How good is your credit? You know and we are talking about unsecured loans but in some cases, you know do I have collateral? You know, do I have a business that I have proven where I can show financials with net profits?
Or am I in the early stages where I cant really show net profits on a tax return. I can only show some money flowing into my bank account. Well you will probably be able to get a loan if you could do that, but you gonna pay higher rates in terms for that.
So it is all a function of what you can offer to the lender. So yes there are vary small percentage of the time where you can get those low single digit rates.
Then there are other times where you have to find something else that works for your business.
Remember no matter what you pay, for your loans or your lines of credit, you always want to ask CAN I REPAY THIS? DO I HAVE THE MEANS TO REPAY THIS MONEY WHETHER IT COST A LITTLE BIT OR A LOT?
There are a lot of people who are growing there business with high cost loans and if you have to do that. Just make sure you do the math and you can justify paying back the debt that you are going to take on.
So thanks for writing in again. Appreciate the question Summer. Many other people have asked the same question over the years. We wish you all the best with your business.
Thanks again for checking us out.