Whenever a businessman thinks about taking a loan for business, he is confused between safe and unsecured business loan. But a decision can be taken only after knowing the difference between the two. Today we will tell you why business loan without security is better than business loan with security.
Whenever a person thinks about starting a business, he needs resources and capital. Savings are the best way to raise capital. Or money can also be taken from family or friends. However, the need for money in business keeps on happening from time to time. Any person needs money for expanding business, buying inventory, cash flow and other reasons. In such a situation, traders think about taking a business loan.
Now the question arises which business loan to take? There are two types of business loans – first secured loan and second unsecured loan. Both types of loans have their own special features and requirements. Both are completely different and choosing the best among them becomes very important.
Collateral is an asset in a secured loan that supports the business loan amount. When the borrower is unable to repay the loan, the money is returned by selling the property held as a guarantee. At the same time, when there is an unsecured loan, then no kind of property has to be mortgaged. Therefore, business owners who are unable to provide guarantees can turn to formal credit.
The risk in secured loan is high because if the customer is unable to repay the loan, then the security will be lost. At the same time, there is no such risk in collateral free business loans.
Processing of secured loan takes more time. The lender first measures the value of the thing to be kept as security. But there is no such requirement in unsecured loans. The loan amount depends on the reliability of the customer.
A major difference between the two loans is that secured loan banks provide unsecured loans while NBFCs. While applying a small business loan in the bank, the customer has to go to the bank to submit the documents. But most NBFCs offer online business process, where the customer does not have to go round the lender’s office.
From the points mentioned above, it is clear what is the difference between secured and unsecured loans. But when you take a business loan, some things have to be kept in mind, including loan eligibility, the need for documents and the repayment period.