Are you looking for funds for business? But don’t know how to accumulate money for the company. Thinking of taking a loan from Bank but not sure what are options available? If these questions are there in your mind, then you are in the right place. Today doing business is considered the most valuable and reliable thing ever. You are your boss; you don’t have a follow tight deadlines and everything is there at your disposal. But young entrepreneur faces a problem of generating enough funds to run their business smoothly.
What do Unsecured Business Loan mean?
So now the question arises what unsecured business loan is? Many small business people don’t have many assets due to the simple reason they don’t deal with significant production, or they are the newbie. In that case, they always look for a new source of getting the loan without complication and hectic documentation. It is when the unsecured business loan comes to rescue. As the name suggests its unsecured loan, which means the borrower doesn’t have pledge any asset and property to get his loan sanctioned. This type of loan is suitable for small aspiring business people with limit resources. No collateral security is required to approve the loan, which is a mandatory factor for other types of loans. Isn’t this great!
If no collateral security is needed, then what is the basis of providing loan?
Yes, that’s an intelligent question. There are sudden another parameter based on which loan is disposed of, namely-
- Creditworthiness: What is your ethos in the market? Are you a credible person who can repay the loan with interest on its maturity date. If yes, a loan is yours.
- Current income: What is your present income? Is it enough that you will able to pay off the principal amount with interest? Great! Your loan will be sanctioned easily.
Many other parameters vary from lender to lender, but the factors mentioned above are very must and essential elements.
What if you don’t quality those two essential parameters?
Many times you can fail two qualify those two critical conditions. Does that mean you won’t be able to apply for the loan? Don’t be heartbroken! There are many other options available for you, namely…
- Guarantor: Cosigner can help you out. A cosigner is a person who promises to pay the loan on your behalf if you failed to pay off the loan within the specified time. Usually, it may create a problematic situation for the cosigner if you were unable to pay off the loan. Just remember your cosigner will be 100% responsible for you.
- Collateral Security: One more method is to borrow agents some collateral assets or property but one thing you have to keep in mind that if you failed to pay them back, your property would be seized. The reason behind taking unsecured business loans is the lack of resources and funds for applying for a secured business loan.
- Try not to borrow much: If the debt to income ratios is creating obstacles, the small loan will mean fewer monthly payments of the same.
Let’s talk about the pros:
There are many advantages of unsecured loans. Some of them are –
- No Collateral security – To get this type of loan, you don’t have to pledge your property or anything such. So your home, vehicles, commercial property or fixed asset are safe and secure.
- Not much paperwork – You don’t have to do much documentation or adhere to complication procedure to get the loan. Simple essential documents submission and your loan will be sanctioned.
- Blessing for small-business firms – Usually small businesses men don’t have much resources or assets. As a result, it is always difficult for them to apply for loans, but with unsecured loan options, they can quickly get capital for their business.
Now it’s time for cons:
Every coin has two sides. One is positive, and the other is negative. So yes, Unsecured Business loans do some cons which have to be taken into consideration.
- High-interest rates: Interest rates are high than usual. This is only due to the reason that loans are providing without mortgaging any property.
- Short life: The tenor of such loan is way too shorter as compared to collateralized loans and due to which you get less time to pay off your mortgage.
- Exorbitant Installment: Due to high-interest rate and short tenor, the installment per month is the way to high, and it becomes difficult for small business people to pay off the loan on time.
So these are some advantages and disadvantages of unsecured business loan which must be considered before applying and more importantly, do read the terms and conditions so to avoid future conflicts.