Getting business funding is crucial to making a business grow steadily, though many business owners often struggle with the funds. In the beginning, a business owner has to incur considerable expenses. As a result, business management becomes difficult due to the financial crunch. Entrepreneurs have to pay employee wages, utility bills, etc. Nevertheless, they must invest in long-term assets, production facilities, and many more. In such a scenario, businesses seek unsecured business loans to manage expenses.
Generally, you will find two business loans: secured and unsecured. A secure loan comes against security, which can be a tangible or intangible asset, equipment, fixed deposit, property, etc. On the other hand, an unsecured loan does not need collateral. In the following section, you can find the benefits of choosing an unsecured business loan in Bangalore.
1. Suitable for Startups or Budding Entrepreneurs
Applying for a loan against collateral is way more complicated than people commonly perceive. Firstly, not all banks offer secured loans to borrowers; thus, you need to find a bank that offers such a loan. Secondly, small businesses do not have the appropriate collateral to apply for a secure loan. As a result, loan applications are rejected in such cases.
A budding entrepreneur or startup owner should choose an unsecured loan over a loan secured by collateral. Many banks offer unsecured business loans with minimal document verification. If the business owners have a good credit history, obtaining such loans will not be difficult. Nevertheless, the Indian government has introduced various unsecured loan schemes to encourage startups and small-scale business owners to expand their businesses.
2. Easy Application Process
Obtaining unsecured loans is simple due to the minimal hassles in document verification. Nowadays, business owners can apply for loans online, and the lender will contact them if they are eligible. Typically, lenders check the credit scores and history of the applicants. Therefore, your chance of loan approval is high if you have a good credit history.
The borrowers have to make a formal application by filling up a form. Before the loan is approved, the lender checks the document’s authenticity and a few more aspects. The overall process takes around one to two weeks. Some banks and financial institutions also offer unsecured loans with quick approval.
3. Flexibility of Using the Fund
Secured loans come with specific terms and conditions, and borrowers should read them carefully. In most cases, secured loans are offered to satisfy specific business requirements. Therefore, business owners must express the exact reasons for the loan application. You cannot utilize the fund for other business investments or expenses.
Unsecured business loans offer the much-needed flexibility of fund usage to business owners. The applicant may have to state the reasons for applying for the loan, though they are free to use the funds for other business purposes. Small-scale businesses seek such flexibilities as they often remain unsure of their future expenditure plans.
4. Small Lending with Flexible Tenures
At times, businesses do not need a high loan amount. Instead, they seek small loans to manage certain unforeseen expenditures. For example, you may have to pay a hefty unplanned bill for some utility services. Applying for unsecured loans is more convenient in such cases. Moreover, you will get a small loan amount with flexible repayment tenure.
On the other hand, secured loans operate differently. You will get a loan of around 60–70% of the asset’s value. The borrowers do not have the flexibility to alter the loan amount by a considerable margin. Therefore, you need to find a low-value asset if you want a smaller loan amount. But, applying for a secured loan with a low-value asset may lead to loan application rejection.
5. Low Yearly Interest
Low interest is one of the significant benefits of an unsecured business loan in Bangalore. However, the interest rate depends on your credit score. A business owner with a high credit score can easily procure a loan with low interest. Nevertheless, such borrowers also find more flexible options for loan repayment tenure.
In a secured loan, the rate of interest remains constant for everyone. Your credit score does not matter, as such lenders do not check your credit history. Therefore, a good credit history should not choose a business loan against collateral.
6. Multiple Options for the Borrowers
Unsecured business loans come with multiple options for borrowers. A business owner can approach a bank and apply for a loan. Alternatively, many financial organizations offer such loans. Moreover, you can find a loan according to your business sector. The Indian government has introduced many small lending plans for IT, agriculture, manufacturing, and other MSMEs (Micro, Small, and Medium Enterprises).
The options are limited in the case of unsecured loans, and you will find only a few lenders available. So, you cannot contact a lender and apply for a loan if another lender has turned down your loan application. So, these are the benefits of choosing unsecured loans over secured business loans.