To make sure the flow and growth of your business, the need for money is an important and common phenomenon. Especially, for small businesses, the lifeline of a business depends upon the smooth flow of funds. Most of the time, businesses have to face some advantages, where survival only depends upon financial boosting. This is the time when you have to think about the fund for your business. The options for funding can include, borrowing funds from family, a cash advance from the credit card, or also applying for a fund from banks. Among all of the options, the most preferable is to take a fund from banks. There are various sources of funds, such as secured loans, unsecured loans and sometimes it may also be a personal loan. In the selection of these fundings, one has to cautious about the safety of the business.
Thus, in this article, we will see what to choose for your small business in between the option of a secured loan and an unsecured loan?
Secured loan Vs Unsecured Loan
What is a Secured Loan?
A secured loan is a type of credit that is given by financial institutions. At the time of applying for the fund, you have to mention some collateral for the repayment of the funds. The fund will be approved only when the borrower gives all the financial assets to the lender. The amount of the credit will depend upon the market value of the provided asset by the borrower. The lender will have all the rights on the asset till the repayment is completed. Once repayment completes, the lender will return all the documents of the asset.
What is an Unsecured Loan?
An unsecured loan is a kind of credit that is provided to the borrower depending on the credit rates and repayment capability of the fund. In this kind of funding, borrowers do not have to promise some kind of assets for the repayment of the fund. In this kind of funding, the borrower will be approved for the fund with the help of his credit history. Likewise, for the approval, the lender will check the cash flow of the account, profit and loss history, borrower’s credit statement, etc. if the lender finds the borrower worthy of the loan i.e. he is capable to repay the funds, then the fund will be approved.
Which one is better for Small Businesses- Secured Loan or Unsecured Loan
Generally, both types of business funds can fulfill your need for a smooth flow of business. However, this only is not the destination but the result would be the way you are selecting for the destination of your business. Before applying for the fund, you should check the business loans EMI. Also, calculate business loan EMI.
The risk profile for unsecured funds is very low for the borrower. The unsecured fund is free from any type of collateral. This means the borrower does not need to put any type of asset against the repayment of the fund. Whereas in secured funds, the assets can be at the risk. Collateral free funds can give you a secure feeling about the security of your assets.
Easily Achievable Eligibility Criteria
Many of the small businesses are not capable to complete the eligibility criteria of the lenders, due to which they are rejected for the fund. For these conditions, unsecured funds come up with some of the eligibility criteria which are easier than that of secured funds.
Number of Options for Repayment
Unsecured business funds also have flexible repayment options which are quite an important requirement of small businesses. The fund values of the small business start from six months up to three years. The borrower can go for any one of the options for repayment. Also if the borrower wants to pay the fund as soon then he can choose the method of repayment whether on a daily, weekly, fortnightly, or monthly basis. As a result of these options, the borrower will have the stress-free repayment of the fund if he goes for an unsecured loan.
Less Time Required for Verification
Generally, in the need of money, the borrower wants to get the approval for the fund in less time. Then for this concern, an unsecured loan is the best option. Generally, an unsecured loan can approve your fund request in between 3 to 5 days. Whereas in the procedure of secured business fund, the fund will take between 10 to 15 with the verification procedure alone.
Therefore, for small businesses, an unsecured loan is the safe option for funding. Above, we explain the factors about why unsecured business loans are good options for funding. Thus, you can choose the option by keeping all the factors in your mind. You can opt for a secured loan if you have assets to repay the funds. However, if you want short term fund with good flexibility, you can go for an unsecured loan. So, check on the list of your needs and select the perfect option for your business.