There are different arrays of loans provided by the lenders in India, out of which one is an unsecured loan. Unsecured loans prove to be the best option if you want a loan for business purposes. Let’s see why unsecured business loans are considered best. Most of them believe that unsecured business loans are great as they have less turnaround time and more flexibility due to which a person taking a business loan can stick to their goal to expand the business and earn profit without worrying about the loan worries, which comes attached with other kinds of loan.
What is Unsecured Business Loan?
Unsecured business loans are a type of loan where no collateral such as property or any other personal asset is required. However, a borrower needs to have a good credit score, good cash flow, and good credit history to show it to the lender. Based on the credit report, the lender approves the loan as it shows the creditworthiness of a person. The loan period is usually shorter than a secured loan; the amount of interest charged depends on the borrowing period. The loan amount in the unsecured business loan may vary from Rs. 50,000 and go up to Rs. 50 lakh, depending on the business size and need. Some examples of unsecured loans are business loans, payday loans, credit cards.
Pros of an unsecured business loan
- An unsecured business loan can be availed easily and at a faster pace as no collateral is required. If the collateral is required, in the case secured loan, then the lender will assess the property and then proceed, which is time-consuming.
- Unsecured business loans do not have an amount attached to them. The amount is sanctioned just by looking at your credit score. However, in secured loans, the loan amount is generally around 60 to 70 percent of the market value of the asset.
- No risk of having property seized. In some cases, the lender can seize property to recoup the loss on a loan according to the agreement between the lender and the borrower. Mostly, if a business file for bankruptcy, the court may discharge the loan.
Cons of an unsecured business loan
- Unsecured business loans come at a higher interest rate which is risky for some people to make the EMI payments on time.
- Over the long term, a borrower pays more principal money when compared to a secured loan.
- Unsecured business loans are generally harder to qualify, as there is no collateral attached to them. A lender only looks at your credit score, credit report, and financial reports to check your creditworthiness. It gets more difficult if your business is new or has a poor credit score.
- Due to the increase, the loan amount provided by the lender is also small. Generally, the lender approves a high amount if the collateral is attached to the loan. It is good if you need money to organize a business event but this will be suitable if you have to expand your business or purchasing machinery.
Things to remember:-
- True, unsecured business loans don’t require collateral but your lender will still require information about your business income, liabilities, credit, and other factors so that in case of default the lender can seize the money.
- The unsecured business loan is provided for Rs 50,000 and goes up to Rs. 50 lakh depending upon your credit score and business size.
- All the given factors vary from bank to bank, interest rate, loan amount, etc. What remains the same for everyone is that the lender will assess whether you have the capacity to pay the loan back, plus interest, within the period of time and terms set for you.
Conclusively, an unsecured business loan can be beneficial or worst, it totally depends on various factors which should be considered before taking any decision. An unsecured business loan can be best for the people who have a good credit score and growing business whereas it can be worse for business owners who have just started. Surely, it will make more sense if you qualify all the advantages of the unsecured business and you are sure that you can make the payments on time without default. Now, you are aware of the pros and cons you should make your decision wisely based on these factors.