- Overview of Myths about unsecured business loans
- What is an Unsecured Business Loan?
- An unsecured loan is only for small businesses
- It is slightly difficult for smaller amounts of loan
- Banks are the only lenders of Unsecured business loans
- Time taken to get a business loan
- Business loans are not offered to startups
- Benefits of Unsecured business loans
- Unsecured business loan with a bad credit
Overview of Myths about unsecured business loans
Small business owners will most likely need more funds to cover costs, hire more employees, purchase additional inventory, or cover some mandatory costs. Lenders typically offer two types of funding – secured and unsecured. Understanding both types of funding is very important to know which is the right fit for you or your business.
Read More: Complete Guide on Unsecured Loans
What is an Unsecured Business Loan?
Unsecured business loans are those for which any collateral is not required against the amount borrowed by the borrower. This is the major difference between secured and unsecured business loans. However, many business specialists say the borrower’s creditworthiness strictly backs that loan.
Small business owners generally go for unsecured business loans when they cannot provide collateral as required or negotiate better repayment terms with the lender. The personal guarantee terms within unsecured loans are very generous with the borrowers, but defaults can outweigh the negatives for business credit scores.
An unsecured loan is always better for the borrower, so the lender typically charges a much higher interest rate than the loans backed by collateral. However, qualifying for such types of loans is also hard. To alleviate the lender’s risk, unsecured loans are offered for a short term as risk is involved in unsecured loans. To qualify for an unsecured loan, the small business should have a solid financial history, a good credit rating, and a cash flow.
With so much information nowadays, deciding what to believe and avoid can be challenging. Some things need to be clarified about unsecured business loans. Let us debunk some myths about unsecured business loans to avoid such misconceptions.
An unsecured loan is only for small businesses
It is commonly believed that one can get an unsecured loan only if they have a small business. This means the established business owners will have to wait longer to get approval for an unsecured loan. But this is not the case anymore. With emerging technology, many digital lending platforms provide business loans without any security in no time.
The lender checks the history of the organization before giving the funds. The lender also checks the creditworthiness of the business owners, and their relationship with the lender also plays a role in lending.
Read More: Complete Guide on Secured Loans
It is slightly difficult for smaller amounts of loan
The chance of getting a loan sometimes reduces when the loan amount is smaller. Though as long as the business has the right track record, the owners can handle the amount they apply for. Whether the amount is big or small is something little to bother. What matters more is how much you need for your business.
This is one of the misconceptions in the minds of individuals that you will qualify for loans without collateral if you apply for larger amounts. However, this is not the case. Everything depends on your relationship and credit history.
Banks are the only lenders of Unsecured business loans
As everything is evolving worldwide, so is the case with the financial market. With time the financial market has evolved extensively. The emergence of various financial institutions and lenders has made it interesting for business enthusiasts for their business. Business owners can rely on something other than traditional institutions as many more lenders are available for funding.
There are plenty of lenders in the market who provide unsecured business loans at competitive interest rates. Some lenders also provide services that involve much less documentation and easy disbursals. The process is fast, simple, and straightforward. However, it is recommended to choose a lender which is trustworthy and backed by a trusted name and has been in the industry for a long time which can be considered.
Time taken to get a business loan
One myth is that it takes months to get a business loan in the minds of different business owners. There are times when business owners apply for unsecured business loans months before they require the funds. It is probably because they think the approval of the loan may take months or days. They feel it will be safe to take the approval before and be prepared.
However, various financial institutions and lenders make it easier for business owners to get funds. For example, a digital lender like Hero FinCorp provides easy documentation plus approval and fast disbursal within 48 hours for their clients for unsecured business loans. So nowadays, business owners can rely on something other than traditional lenders and wait weeks or months to know if their applications will be approved.
These problems may arise for small business owners; however, business owners do not have to worry anymore. There are many alternatives available from which business owners can benefit. The world is changing, so everyone should make the most of it.
Business loans are not offered to startups
It is true that for existing business owners, it is easier to get unsecured business loans as they have longer financial statements that they can show to lenders for processing loan applications. But it’s different from lenders refusing to give startups or new businesses loans.
If startups or new businesses have the right documents and business in place, lenders will provide the funds you require for your business needs. Business owners can also fund their business requirements through credit cards. Also, it depends from lender to lender on what terms and how they provide loans to different types of businesses. But if you seek it among the thousands of lenders, you will find one that will help you with your needs.
Benefits of Unsecured business loans
Medium and small enterprises need funds to boost their business. And for that, we recommend unsecured business loans to business owners. So if you are also one of them, you should know a few benefits of unsecured business loans.
There might be a case when you require funds, and you think of choosing an investor with a few shares of percent in your possession. However, this is different when you opt for unsecured loans. There will be no sharing of funds, and you will be the whole and sole of it.
The key point of an unsecured business loan is that you will have to bear less risk. As collateral is not required so the percentage of risk will be less here in unsecured loans.
As mentioned earlier, new companies will not have any collateral to offer for getting the loan. Hence, this loan has no such criteria of collateral, and the process is smooth and easy for taking the loan without any security or possession.
The Application process for unsecured business loans is smooth and easy. The process is shorter compared to other loans. And business owners can even get 24-hour disbursals also.
It is easier for business owners to develop credit ratings with unsecured business loans for people who do not have one. The fast process ensures a great credit report.
The spending responsibilities of unsecured business loans are left to business owners by lenders, and the financing is unrestricted. Lenders say the floor is for business owners as long the money is used for business purposes.
Unsecured business loan with a bad credit
Yes, getting an unsecured business loan with bad credit is possible, but it may be a little difficult. Businesses with low credit ratings or are still building credit can get unsecured business loans in the form of invoice financing or an MCA. So it’s easy for any business to get an unsecured business loan. It’s just that a little study and hard work are required to get something valuable for your business needs.
With unsecured business loans, you may get funding quickly; the process is easy and fast as compared to other loans for businesses. Business owners can get loans from traditional institutions like banks, credit unions, online lenders, or other fintech companies. Business owners can study and inquire about the different lenders and then choose the one which is good for them.
Read More: Complete Guide on Term Loans
Unsecured business loans are loans without any security by business owners. It is easy to apply for an unsecured business loan, and the process is fast, simple, and straightforward. However, there are a few myths in the minds of small business owners about unsecured business loans, which we have listed in this article. Still, the case is different nowadays for unsecured business loans. Getting unsecured business loans with emerging financial institutions and lenders is easier
Unsecured business loans only for small businesses?
No business can opt for an unsecured business loan for any amount they want.
Who can avail of unsecured business loans?
SMEs, professionals, manufacturers, and traders can avail of unsecured business loans.
Is there any maximum and minimum amount for an unsecured business loan?
Yes, the minimum amount for an unsecured business loan is 10 lakhs, and the maximum is 50 lakhs for businesses. However, it also depends on lenders and businesses.
Can business owners prepay an unsecured business loan?
Yes, business owners can prepay an unsecured business loan. However, a certain time cap depends on the lender.
Is the documentation process of an unsecured business loan very lengthy?
Unsecured business loans have the easiest and fastest documentation.
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