Unsecured Business Loans- A Comprehensive Guide

25 Jan 2021

The unsecured Business Loan is an option to get the loan amount without providing any securities such as any personal liabilities or the assets liabilities. You don’t need to provide your property papers, any valuable assets or other securities.

Such type of loan is beneficial in many conditions. Few of them are as listed below:-

1.You have a small business and you require some good capital to boost the business but you don’t have any valuable goods to provide as security.

2.The unsecured loans are not limited for the small businesses only. It can be borrowed by the big-budget business owners too for their different needs.

3.Your business is already running successfully but you want to buy some stocks or products at any offer price but you don’t have some extra fund right away. So here the unsecured loan is going to be helpful for you.

4.You want to open another branch of your business but you are running short of funds, you can apply for the unsecured business loan

5.You want to refurbish your outlet but can’t wait for a longer time to save the money and then use it for the same. You must go for the unsecured loans.

What are the types of unsecured loan?

• Personal: You borrow a lump sum amount as a loan and then you are abiding to clear the loan amount within the agreed tenure

• Guarantor: To borrow this loan, you will need to have a person who can sign the document as a guarantor. The guarantor acts as your guardian and if in case,  you fail to repay the amount, the guarantor has to clear the dues

• Debt Consolidation: Under this category, you can apply for a loan to clear the dues of an old loan if you have any. Try not to make it in your habit to clear the past dues by taking a new loan.

What are some examples of unsecured loans?

• Credit Card: A flexible way to borrow money from the bank. The credit card is a physical card like an ATM which allows you to earn some rewards on spending the amounts in shopping. You will be not charged a single penny if you haven’t used the credit balance. After spending the money, you will have to pay the same amount within the deadline else, you will be charged some late fine as an interest rate.

•  Personal Loan: You can borrow the money for short terms to fulfill your personal needs. It may cover to plan a wedding, a vacation, family trip, home refurbishment, purchase the gadgets; purchase any assets, to pay other dues amounts and so on.

•  Business Loan: To boost up your business, you can head to the unsecured loan for your business. It will help you to borrow the money for a short time which may be helpful for you to buy some extra stocks, open another outlet, clear any previous dues and so on.

•  Student Loan: A student can also apply for an unsecured loan. It will help you to pay the institution fee, to purchase the course materials, to pay the hostel or a transportation fee and so on. Since, as a student, you don’t have anything to provide as security, you can go for this loan for a shorter time.

How do lenders check the borrower’s eligibility for repayment?

Below are the few points which are randomly being checked by the lenders before approving the unsecured loans:-

1.Good Credit Score: If you have already borrowed the loan previously then you must be aware of the Credit Score. It makes a record of the person on the basis of their transaction behaviour. If you have paid the dues regular on a time then you will get the better credit score and vice versa. On an average, if you have earned credit score more than 600, then it’s a good sign to get approval your next loan at the lowest interest rate. The less credit score you have, the more risk the lender has to face. So, they will charge the highest interest rate.

2.Regular Cash Flow: Before approving your loan, the lenders will property check the regularity of the cash flow in your account. If you are a salaried person, they will check for your monthly salary credited on your account. And, if you are a self-employed person, you can show your business transaction flows.

3.Previous financial history: The lenders will check for the previous history of your loan. They will analyse the risk on the basis of your amount, tenure and the repayment mode. If you had cleared your past dues on time, without any delay then it gives a trust signal to the lender to approve your loan easily on the possible lowest interest rate.

Top 7 Differences between a secured loan and an unsecured loan?

Secured Loans

1.    You can borrow it for a long time

2.    Need to provide the property paper or any assets as a security

3.    Interest rate is lower because the lender has your assets as a security to recover the repay amount

4.    Bit slower process because it takes time in processing your documents

5.    You can get the loan with poor credit score but the interest rate would be higher

6.    You can apply for up to £100,000 or even more in case of secured loan

7.    If you are unable to pay the loan amount, you are at the risk to lose the collaterals you provided at the time of issuance of the loan

Unsecured Loans

1.    You can borrow it for a short time

2.    No risk of assets because you don’t need to submit it to the bank

3.    The interest rate is comparatively very higher because the lender has to go through a bit higher risk as you don’t need to provide any security deposit

4.    A quick and easy method to get the loan amount

5.    You are not eligible for an unsecured loan if you have Poor credit score

6.    As compared to a secured loan, you can’t apply for a big amount under unsecured loan

7.    If you are unable to pay the loan amount, you aren’t at the risk to lose any such valuable assets despite the lenders may take some other action as per your present financial condition

Is the Unsecured Loan being really “Unsecured”?

In other words, the unsecured loan is a fast process of financing to borrow the money without keeping your valuable assets as a security deposit. It is a legal agreement between a lender and a borrower which state that the borrower is bounded to repay the loan amount within the given timeframe which has been promised.

Still, the lenders have the legal right to recover the equivalent money of the loan amount by hook or crook, in case if you can’t pay the dues. But yes, they can only take the steps by getting approval from a court order.