What Are The Pros and Cons of an Unsecured Business Loan?

Business loans are usually of two types – Secured Business Loans and Unsecured Business Loans.

Pros of unsecured business loans

Below detailed are the pros of unsecured business loans:

Collateral-free

Unsecured business loans as the name itself suggest is a loan for business without security. MSMEs need not worry to present collateral or security to the financial lender to get the business loans. It is therefore favourable for MSME having a small business or for start-up companies to get the desired d funds.

Quick processing of the loan

Typically, processing of the secured business loan takes time as the financial lender takes time to initially review the security provided by the company for the loan and then to determine its value. Whereas as there is no security involved in an unsecured business loan, the loan processing is quick, and the funds conjointly get credited into the account of the MSMEs within a few working days.

Flexible loan amount

Owing to no security being involved in the unsecured business loans, the amount of the loan is not restricted which does get restricted in secured business loans to the value of the security provided. Thus, the loan amount that is decided by the lender to sanction for MSMEs would entirely depend upon its credit score, cash flow of the MSME, the business plan presented, etc.

Good credit score

MSMEs maintaining a good credit history and having a good credit score will be benefitted firstly to lessen the loan processing time and secondly in obtaining a high loan amount.

Flexible repayment tenure

Unsecured business loans allow MSMEs firstly to obtain the funds as per their requirements and secondly repay the same. And moreover, the MSME loan interest rate is applicable only on the loan amount utilized.

Cons of unsecured business loans

Below detailed are the cons of unsecured business loans:

MSME loan interest rate

Financial lenders often perceive unsecured business loans as highly risky owning to no collateral being involved. Thus, financial lender sanctions MSME loans at a very high MSME loan interest rate to safeguard them. However, there are few Non-Banking Finance Companies (NBFCs) like Ziploan that may offer you an affordable MSME loan interest rate.

Credit Score

MSMEs need to have a high credit score to get a high loan amount under unsecured business loans.

Business loan documents

As compared to secured business loans, the business loan documents for unsecured business loans are basic but if MSME fails to present any of the required business loan documents then the loan application may be rejected. Business loan documents for unsecured business loans are Identity proof, address proof, bank account statement copy, business registration copy, profit & loss statement copy, income tax return copy, etc.

Lesser loan repayment tenure

Financial lenders provide less repayment schedule to MSMEs owing to the risk associated with no security being involved in unsecured business loans.

To conclude, MSMEs first need to outweigh the pros and cons, as detailed above, of unsecured business loans before planning to apply for the same for their need for funds. NBFCs like Ziploan may provide your best offer for MSME loans which would be lenient in its requirement like credit score, business loan documents, etc for MSME loans and also may provide your customized loan amount with better MSME loan interest.

FAQs

1. What is an unsecured business loan.

Unsecured business loan as the name suggests, are loans without collateral/security.

2. Are unsecured business loans safe?

Unsecured business loans from a reputable lender like Ziploan are safe. Unsecured loans mean you don't require to submit any collateral, and if you are not able to pay, then, rather than losing any of your security, it is the credit score that will drop, which will lower down your ability to qualify for a business loan with low-interest credit in the future.

3. What happens if an unsecured business loan is not paid on time?

Not paying the unsecured business loan on time may not directly result in forfeiture of your security or collateral, as it has in a secured arrangement, but it can lead to attempts of collection, credit ratings going down and, in some cases, may even reach to lawsuits.

4. Can I get a quick disbursal of a business loan?

Yes, if you avail of an unsecured business loan from Ziploan, you get the best loan offer, as the disbursement of the business loan happens just in 3* working days after the borrower of the loan signs the contract.