In India, it is easier to avail secured business loan from banks as compared to unsecured business loan. However, a large chunk of businesses prefers unsecured business loan as it does not require any collateral to be pledged and enables them to avail credit even without any asset.
In recent years, the new age lending institutions have brought slime ease in availing business loan and have also bought a variety of unsecured business loan products in the market.
The FinTech businesses are disbursing loan within 72 hours by using the real-time financial data and assessing creditworthiness based on it along with other traditional and non-traditional sources. Although the various unsecured business loan products vary in aspects like rate of interest, eligibility criteria, tenure for repayment, etc.
Here are some popular reasons for which businesses prefer an unsecured business loan
The processing and disbursement time in case of secured business loan is longer as compared to unsecured business loan. In case of secured loans verification of documents and assessment of assets is done along with determining its value. However, no such procedures are required in case of unsecured loan.
It helps entrepreneurs fund immediate financial needs and improves the cash flow in the business. Some lending institutions nowadays are disbursing unsecured business loan within 72 hours.
No Ownership Sharing
Nowadays, financial options like venture capital and angel funding are becoming popular. However, no entrepreneur can avail the benefit of these funding sources of their business plan does not impress the venture capitalist or angel investor.
Besides, they also need to share ownership of their business with them without incurring debt. However, unsecured business loan help entrepreneurs start and expand their business without sharing the ownership of the business or sacrificing managerial control.
Variety of Loan Products
In today’s time, you can fund your business either through term loan, overdraft or business line of credit. Or you can also opt for a business credit card, technology-driven credit products like the point of sale finance, etc. Thus, by selecting the right unsecured business loan product, you can easily maintain cash flow in your business.
The repayment options differ across various loan products. The lenders provide EMI options for a term loan. However, the new age lending institutions offer a flexible and convenient way of repayment along with the opportunity to choose from various repayment options. Some financial institutions also allow entrepreneurs to repay the debt before tenure without charging any prepayment or foreclosure charges.
Many small and micro businesses lack the adequate asset to pledge as collateral to avail a loan. An unsecured business loan allows these businesses to avail credit and meet their financial requirement.
Simple Application Process
Lots of lending institutions provide the facility to business owners to first compare various unsecured business loan products and then choose the right best one for them. Plus, the documentation and paperwork required are minimal, which makes it a lot easier for entrepreneurs to avail business loan from them.
Short Repayment Period
Many lending institutions provide an unsecured business loan as a short term credit. The repayment period differs from each loan product. Some credit offers are for a few months, while others can be availed for 3 to 5 years. Thus, it helps entrepreneurs meet their financial needs without getting into a long term liability.
Reduced cost of credit, a shorter period, flexible repayment and easy maintenance of positive cash flow are some crucial reasons for which most businesses prefer to avail an unsecured business loan. However, you must evaluate the pros and cons of availing the loan and also identify whether they qualify for the loan or not to make sure the application process is hassle-free.