All You Need to Know About Unsecured Business Loans

Business loans are sanctioned to existing business owners or budding entrepreneurs looking to start their own business. The business loan amount helps them get their idea off the ground. Existing business owners can use the funds to take care business expenses. The loan amount includes the principal amount which is paid with interest in monthly installments. How affordable/reliable is a business loan? Can you, as a business owner honour your installments on time? Other than loans from banks and NBFCs, you can get personal loans for business from FinTech lenders as well. In this article, we discuss business loans in detail.

Business loans are broadly categorized into two types - secured business loans and unsecured business loans.

What is an Unsecured Business Loan?

The main difference between secured and unsecured business loans is that the latter requires the you to offer collateral while an unsecured loan does not require you to pledge any security. For a lender, secured business loans are low-risk because of the presence of collateral as security. They can fall back on it in case the borrower defaults on the loan.

As a business owner, you can also opt for unsecured loans. These types of loans are easy to repay, but they come with relatively higher interest rates than secured loans. This may cause problems for you, because there’s no telling how high or low your monthly EMI will be. It all depends on your lender and the interest rate that they offer you. 

There are many factors that your lender will evaluate before approving your business loan application. They will lend you money in the form of an unsecured business loan only if you show a strong personal credit score with excellent repayment behaviour. Certain lenders may also require you to be in business for a minimum number of years (1-2 years). 

Traditional money lenders like banks hardly sanction these types of loans quickly, but online money lenders easily provide you online business loans. There are many things which we may assume while talking about this type of loan. Availing of an unsecured business loan is an easy way for people to start their business, expand it and repay the loan from the profits earned. But at what interest? The interest rate varies across all lenders, along with the other fees and charges. Unless you bring a guarantor with you, there is nobody you can depend on.

Benefits of Unsecured Loans

If you want to be a business owner with strong credit, excellent financials, and the ability to afford the interest rates on a business loan, an unsecured loan will help you get there.

The first benefit of this loan is that it is easy to receive, with no paperwork and without a collateral. There is no need to put some valuable property at risk of being seized at the time of loan default. Your lender will not ask for these formalities. The application process is quicker than other types of loans.


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