Unsecured business loan: The right answer for a small business

   2019-06-17       90        Business
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Business capital is the foremost pre-requisite, be it to start a new business or to help your start up grow. For small businesses to function smoothly.

What are unsecured business loans?

Business capital is the foremost pre-requisite, be it to start a new business or to help your start up grow. For small businesses to function smoothly, it is essential to keep the money flowing with quick and efficient . Opting for traditional is often not very helpful, as banks demand collateral or security from the borrower and follow a time-consuming regime to process the loan. Such loans are called .

However, more often than not, the borrower may not have any assets to pledge as collateral. It is in such situations that small businesses reach out for or . are funds that can be procured by an entrepreneur without having to worry about pledging any assets.

One of the best and easy to understand example of an unsecured business loan is the credit card. Here, the credit card company assesses the borrower’s credit history and offers a personal loan at the higher-than-normal interest rate. There is a pre-approved borrowing limit and a tenure within which the borrower is required to pay off the loan.

Why choose unsecured over secured business loans

One of the biggest advantages of an is that it can be obtained almost instantly with minimum paperwork. It only requires a valid proof of the business, its cash flow analysis and past credit history of the entrepreneur. Defaults (if any), do not put the assets of the businessman at risk. Further, unlike secured , the owner of the business can file for bank ruptcy in the court and obtain a complete waiver of the loan.

Secured business loans require extensive paperwork and proofs, assets (movable or immovable) to be pledged, a good credit history and, a guarantor who can stand as a surety. The borrower is at a higher risk but can procure the loan at interest rates much lower than . The lender takes the least risk and has the surety of recovering any dues by disposing of the assets pledged by the borrower. Defaults in case of secured business loans are not eligible for waivers in the court of law and result in loss of the pledged assets.

To sum up, secured business loans are for those who have assets to pledge, while are for those who want instant funding and have no collateral to produce.

Businesses that can benefit from collateral-free loans

Small businesses usually start with small investments. After breaking even, these businesses grow and would need more working capital to sustain their growth. There are different types of small businesses that can benefit from .

A small business that has been around for more than a couple of years and has been doing well, can benefit immensely from term finance with low processing fee and little or no pre-closure fee.

The top beneficiaries of loans for business without security are suppliers to blue-chip companies. They can procure quick unsecured business funding to pay for pending orders that they are to fulfill shortly.

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Business capital is the foremost pre-requisite, be it to start a new business or to help your start up grow. 

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