4 Things to Know About an Unsecured Business Loan

21 Oct 2022

There are two types of business loans available in the market today- secured and unsecured. A secured loan requires you to hypothecate an asset in order to get access to funds whereas an unsecured loan has no such requirement. An unsecured business loan is an ideal option for those who are not willing to hypothecate an asset for the purpose of borrowing. The loan is available for all sizes and types of businesses in the industry. If your business is in need of funds and you are thinking about applying for a loan, here are the 4 things you need to keep in mind.

1. No collateral: The most important thing about the loan is that there is no need for collateral. You will be able to get the funds based on your profile and credit score. Hence, you do not need to worry about arranging for the documents of an asset or going through the process of hypothecation. You can apply for the loan even if you do not have any assets under your name.

2. Interest rate: You need to keep in mind that collateral-free loans carry high risk. The risk is on the lender and this means that if you do not make timely repayment, the lender will not have any asset to recover the funds. This is why the rate of interest on the loan will be slightly higher as compared to other loan products. If you compare the rate of interest between a secured loan and an unsecured loan, you will notice that there is a high rate for an unsecured loan.

3. Tenure: The loan tenure is long and flexible. You can have a long tenure so as to make the loan repayment with ease and convenience. The tenure will vary from one lender to another and it will be based on the loan amount and your profile. Hence, consider your ability to make the repayment and then agree on the tenure. You need to remember that a longer tenure means you are paying a significant amount towards the interest component of the loan.

4. Eligibility criteria: The eligibility criteria on an unsecured business loan varies from one lender to another. You can be a self-employed professional, sole proprietor, partnership, private company, corporation, or a public company to apply for the loan. You need to have a stable source of income and the documents should be well in place. Some lenders have a turnover criteria you need to adhere to.

Keep these four important points in mind before you apply for an unsecured business loan. Since there is no hypothecation of the property, the loan application is processed and approved without any delay. You can use the funds for any purpose in the business and you will not have to clarify the same with the lender. The loan has high approval amount and a flexible tenure which makes it an ideal choice for most borrowers in the country.

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