How Unsecured Business Loans are safe for your Small Business Loan
An adequate fund is a prerequisite of a business at any stage. Whether it may be a fund to transform your ideas into a startup business or the working capital to run your established business, an ample amount of money is essential for a business entity. Getting the exact amount of fund when you need it most has become one of the biggest concerns of the business owners. Often startup and SMEs (small and medium-sized enterprises) stuck in the crossroad where they have to decide whether they would opt for a secured business loan or an unsecured business loan. Both kinds of business loans are mended to serve business entities and on the surface, both appear same. But when we go deep inside, it is found that there are some differences which makes one of these two more popular than the next. Let us first understand both kinds of business loans. Secured Business Loan A secured business loan is a loan which is backed by an asset of the borrower. The loan applicant must own some assets which have measurable financial value and the same will be used as collateral of the loan. A business loan collateral can be an immovable property, gold, machinery, raw material or inventory stock. When an asset will be collateralized against a loan, the lending institution will hold the deed/title of that property but at the same time, the borrower can enjoy the benefits of it. The lender has to return the title to the borrower, once the loan is repaid.
If the borrower fails to repay the loan in the prefixed time, the lender has the right to liquidate the asset to recover the outstanding loan amount. Unsecured Business Loan An unsecured loan is taken when no collateral or security is kept in line to get the loan sanctioned. Such loans are provided on the basis of the creditworthiness of the loan seeker. Unsecured business loans come in with a fixed interest rate which remains same until the tenure ends. The creditworthiness of an unsecured business loan applicant is gauged in the terms of years in business, its annual turnover and the primary location (city) from which it operates. The business loan rates on an unsecured personal loan are generally higher than the secured ones. Why Unsecured Business Loans Are Gaining Popularity Over The Secured Business Loans? No Collateral Required- The primary reason which made unsecured business loans popular is that this type of business loans doesnâ€™t require any collateral. When a person secures a loan with a collateral, the collateral is always at a risk of being liquefied. But when a person goes for an unsecured loan, the risk of the borrower minimises but the risk at the lenderâ€™s end maximises. To reduce this risk, lenders may charge a higher interest rate. Though interest rate it high still for the growing entities with no or minimum asset, an unsecured loan is the only way to get the desired money. Fast Approval and Disbursement- Unlike secured loans, unsecured business loans have not many documents to go through. While sanctioning a secured loan the lender has to invest time in appraising your collateral, filling out forms, waiting on documents from other sources, etc. But an unsecured loan has none or minimum paperwork which makes it much faster. It is obvious that waiting weeks and months to get the loan sanctioned when you are in an urgency can make the functioning of the business stop forever. An unsecured business loan gives an opportunity to avail ready cash which can work as a life-saving element for the company. A Higher Amount Can Be Borrowed- Some credit experts claim that with an unsecured business loan one can get a higher amount as a credit. The loan amount of a secured business loan depends on the value of the collateral. One can take a loan of the maximum of 70% of the collateral. Hence unsecured loans do not abide by collateral, one can take a higher amount of loan if lender feels the borrower is worthy of it. Minimal Paperwork - The another feature which attracts young entrepreneurs to go for an unsecured loan is the minimal paperwork. Gone are the days when one has to fill piles of forms and bundles of papers has to be submitted to the lender for getting the loan sanctioned. A new business loan which is unsecured can be applied by submitting only the basic documents. The Conclusion
In this digital age, no one likes to wait long for getting their need amount. Especially the for entrepreneurs who need a small business loan, their time is costlier than anything else. An unsecured personal loan makes the loan seeker get the desired amount within a very short span of time in a hassle free manner.
Published on Mar 13, 2018
Published on Mar 13, 2018
Getting the exact amount of fund when you need it most has become one of the biggest concerns of the business owners. Often startup and SMEs...