With your business all set to take the world by a storm, the last thing that should stand in your way is urgent funding or additional capital. Be it for purchasing inventory, funding daily operations or buying expensive machinery for your factory, business loans are the perfect answer to your problem. Business loans can cover you for everything from working capital requirements to growth plans. And these days, you can go for unsecured business loans if you don’t want to pledge any collateral. But first, learn more about business loans.
What are business loans?
Business loans are a mode of finance available for small businesses that are often cash-strapped to meet their diverse short and long term needs. They can be used for a variety of purposes, from funding working capital requirements to implementing expansion plans. These loans can be secured or unsecured in nature, and most financial institutions offer the same. Of course, the rates of interest and other terms will vary accordingly.
Secured business loans are backed by collateral that is pledged to avail the loan. In case of default, the lender can seize the property to recover the loan amount. This entails less risk to the lender, and therefore, such loans are available at low rates of interest. However, most small businesses do not have any asset to pledge. In such cases, going for unsecured business loans makes sense. Depending on the nature of the business and the borrower’s credit history, the lender may decide to grant the unsecured business loan, although at higher rates of interest than what you would get in secured loans.
Advantages of unsecured business loan
- Your asset is not at risk – You are not required to pledge any asset, and therefore, in case of default, you are not at the risk of losing your business or asset.
- Easy documentation – The documentation required is minimal. You just need to submit your KYC documents and business papers along with the proof of ownership.
- Variety in unsecured business finance – Unsecured business loans are available in terms of overdraft facility, term loans, line of credit, credit card, etc.
Eligibility Criteria and Documentation
- Borrower should be between 21-65 years of age
- The business should be either a proprietorship, partnership or a private firm that is listed or non-listed
- The borrower should have been in the current business for a minimum of 3 years
- Business must be profitable as per the industry norms
- Borrower must have a satisfactory credit score
- Audited financial statement for the last three years
- Profiles and KYC of all directors and partners
- Company constitution documents and registration papers
Do note that the eligibility criteria and documentation is the same for all business loans, whether secured or unsecured. The only difference is that, secured loans would also require documents pertaining to the asset you pledge as collateral.
Therefore, business loans can be either secured or unsecured, depending on the nature of the business, borrower’s profile, etc. Now, choosing between the two depends a lot on your requirement. If it is a short-term requirement to meet some urgent expenses or sudden cash infusion, it is best to go for unsecured business loans because in this kind of loan, the loan amount is smaller and you can pay it off quickly and become debt-free. On the other hand, if it is a major financial requirement, like for a growth plan, purchase of machinery, etc., secured loans are a good option. Because the loan amount is comparatively larger in this case, you can take your time to pay it off.
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