If you are starting a business or planning to, and are looking towards securing a loan, you should be familiar with the pros and cons of obtaining an unsecured business loan vs. a secured loan. According to Business Loan Bajaj, you may need strong business revenue, several years of operating history and good personal credit. There are several scenarios for which you should avail an unsecured loan-
You need bigger loan amounts-
secured loans typically offer lower loan amounts, depending on the collateral’s value that you use against your loan. With unsecured business loans, you can take higher loan amounts.
You do not have collateral to back your loan against-
unsecured loans, as implied by the name itself, mean that you take the loans without any collateral, which make them suitable for a business owner who doesn’t have assets to back the loan against. You can use your house as collateral for a personal loan, and use it for your business’ purpose, though ideally it is not available.
You need a line of credit or safety net
unsecured loans can give you the much-needed capital in a quick manner. In fact, many unsecured loan brokers can offer you same-day approval and access to your borrowed money, so you can take action faster. They are preferred by many, to act as their business’ line of credit or safety net, offering the borrower the flexibility in making funding available as needed.
Needless to say, every business venture involves taking risks. Business owners should be well-versed in taking controlled risks. This is also applicable to applying for securing working capital or Business line of credit in the form of unsecured loans. Also, unsecured loans can help you build a relationship with a lender. Business loan interest rates are mainly of two types- which are reducing or diminishing rate of interest and flat rate of interest.
However, business owners should also keep in mind a few cons of unsecured loans to be on the safer side-
even though your loan is not leveraged against your assets, it is still a liability. If you do not pay, the bank is likely to find a quick and easy way to drop your business as a client, since it is collateral-free.
Lack of flexibility
though unsecured loans allow greater flexibility to your business, the same does not hold good when it comes to repayment. Applying for this type of loan entails that you agree to pay it back in installments over a given period of time.
There are additional costs to using an unsecured loan
while unsecured financing can be quick, it also comes with added risks and costs for the borrower to bear. Lenders generally charge higher interest rates to mitigate risk, borrowers with bad credit or borrowing larger amounts will have to interest rate business loan. Before applying, find out in detail about the documents required for business loan.
Author Website: Business Loan Bajaj