One of the most challenging aspects of taking a loan is knowing which loan to apply for and which of them suits our best interests especially when it comes to business loans. One of the most common questions that come to our minds is what secured and unsecured business loans mean.
Secured loans:
A secured loan is when you have collateral against the loan that you are taking. It could be in the form of a property, an FD, or any other asset that you have. NBFCs and banks offer a lower rate of interest in this case, and in most situations, you can take a loan of up to 70% of your asset's worth. However, the processing of these loans takes time, and if the borrower fails to repay the loan, he loses the property to the lender.
Unsecured loans:
An unsecured business loan is where the bank or NBFC does not ask for collateral against the loan. The lender assesses your capacity to pay the loan back, along with your debt to income ratio. The current income of the borrower hugely affects their eligibility for the loan. Since the NBFC or bank does not have any security, the rate of interest for these loans is high, but it is almost instantly approved. Sometimes, these loans are approved within a day or even a few hours. The borrowing limit for these loans is also low.
Which loan is best for you?
If you plan on applying for a business loan for your business, you can check with your lender to know where you stand with the business loan eligibility. Apart from this, you also need to gather enough information about secured and unsecured business loans. Only then can you make the right choice for taking a loan.
Listed below are a few aspects that you should consider to learn which loan is the best option for you:
Collaterals:
If you are looking for a big loan amount and have assets like land or property that qualify as collateral, you can opt for a secured loan since you will get the desired amount at a lower interest rate.
Amount of loan:
For small amounts, you always have the option of approaching NBFCs or online vendors and getting same-day loans or instant loans. It is an ideal option since there are less restrictions on the end-use of money, and you can get these business loans sanctioned from the comfort of your home. However, if you need a big amount, and an instant loan is not possible, a secured loan is the way to go.
When you need the loan:
No one knows what life has in store, and there are times when you need an instant business loan. Under those circumstances, an unsecured business loan is what you should opt for because it is the best option. However, if you have time, you can take a secured loan against an asset that you own.
Both secured and unsecured business loans have their own benefits and drawbacks. Depending upon the nature of your business and capacity to repay the loan amount, you will have to assess all the pros and cons of the loan options available to you. Maintaining a good credit score is also important to ensure that you are eligible for these loan options. Evaluate all the possibilities before you apply for a secured or unsecured loan.
