Unsecured Business Loan: Pros and Cons of Unsecured Business Loans in India

Lack of sufficient capital can hamper the normal operations of a business. Enterprises can function smoothly by keeping the money flowing using unsecured business loans. 

Secured business loans require collateral that may not be in possession of many borrowers. In situations like these, businesses reach out for unsecured loans because they do not have to keep their assets as security. 

Pros of unsecured business loans

• No risk to business assets

Since one does not provide any security against this loan amount, all business assets remain intact. Even in an event of delinquency, business’s properties remain safe and cannot be seized by the concerned lender. 

• Builds up credit history

If a borrower manages to make timely payments of all the EMIs of the unsecured loan, it will build a strong credit history for the business and make the process of obtaining future loans simpler. 

This benefit can help a business obtain an unsecured business loan in Ahmedabad or most other Indian cities and improve the chances of future financing. 

• Minimal documentation

In contrast to secured loans, these loans do not require collateral. When there is no collateral involved, loans are approved faster as lenders do not need to verify a substantial number of documents. 

• A faster loan approval process

Due to the absence of collateral, the time spent on asset assessment is saved. These reasons make the disbursement process faster. 

Besides, many lenders also provide pre-approved offers for a hassle-free and faster loan procedure. Financial institutions like Bajaj Finserv also provide additional offers like Flexi loan facility, large capitals, and hassle-free unsecured loans. You can easily check your pre-approved offer online by providing some basic details. 

• The amount of loan is not restricted to the value of the asset

The amount approved in terms of secured loans depends on the value of the property or asset presented as collateral. Any such condition does not constrain unsecured business loans. The amount sanctioned depends upon the credit score and will ensure that a business never runs out of working capital.

Cons of unsecured business loans

• Higher interest rates

Since borrowers do not have any collateral to seize, an unsecured business loan in Ahmedabad represents a fair amount of risk for lenders. Lenders try to cover this risk by quoting higher interest rates. The interest rate, however, depends upon one’s credit score. Hence, individuals should maintain the ideal credit score while applying for business loans.

• Shorter tenor

In the absence of collateral, which increases risk, most lenders prefer lending a small loan with a short tenor. The borrowers should adhere to a strict repayment schedule imposed by the lender. The shorter tenor can lead to repayment default, which can further hamper one’s credit score. 

• Strict eligibility criteria

An unsecured business loan often carries rigid or strict eligibility. To qualify for this loan, a higher credit score may be required. These criteria also determine the final terms of such loans. 

Looking for pre-approved offers from reputed lenders should ensure minimal hassle when availing of an unsecured business loan. Also, compare the various lenders to acquire such a loan at the best terms and with a significant repayment tenor. 

Many business owners prefer unsecured business loans over the secured ones to meet their financial needs. However, one should evaluate all the options carefully by weighing the pros and cons to find the right funding option.