A Look at 2 Types of Business Loans to Drive Growth

If you’ve always wanted to be an entrepreneur, the day you start your business is a significant milestone in your life. You can finally see your dream taking shape, and you're both excited and nervous. There are a hundred things to do, several decisions to make and plans to execute. One of the most important decisions you need to take is about financing your business. You need to have enough funds for your business to take off and continue operating for a significant period. There are many avenues to borrow money from – friends and family, a loan against your credit card limit, an instant loan online, or a traditional bank loan. When it comes to business loans, they are of two types: secured and unsecured. In this article, we’ll explore both types of loans. Read on:

1.    Unsecured Loans

Unsecured business loans are those loans that are given without receiving any kind of collateral from the applicant. This makes it a riskier proposition for the business loan lender because there's no security to fall back on. However, getting an unsecured instant loan online isn't easy. Due to their unsecured nature, they are much harder to obtain and carry a higher interest rate than secured loans. Many factors go into determining your eligibility for an unsecured business loan. As an entrepreneur, if you already have an established credit history, higher are your chances of getting an unsecured loan. If you've built a reputation for fully paying your debts on time, then that will work in your favour as well.

The underlying point is that positive credit history is always an added advantage. Lenders prefer getting their money back as soon as possible. So, the tenure of unsecured loans also tends to be shorter. Suppose you don't have an established credit history yet. In that case, your lender might consider giving you an unsecured loan if you have a solid business plan. If not, you may have to wait until you've built a positive credit history. Plus, your business has to have been in operation for at least two years to get unsecured loans. Right now, if you're a start-up or don't have a strong credit rating, this may not be for you.

Related Blog - 5 Ways a Business Loan Helps You Grow

2.    Secured Loans

As a business owner, when you apply for an instant loan online to meet your business expenses, your bank/NBFC/lending institution will usually ask you to take a secured loan. This is because there's some sort of collateral (also known as security involved. That's why these loans are called thus – the lender is 'secured' by the collateral that you, the borrower, puts up in exchange for the loan. In case you default on the loan, the lender will recover their money through the sale of your collateral. This can be anything, such as your car, house, or even property – basically anything that you can quickly liquidate. This is also another reason why secured loans have lower interest rates in comparison to their unsecured counterparts.

Now that you know what’s at stake, here are three things you need to keep in mind. The first is the fact that the loan amount you will be sanctioned will be of nearly the same value as the collateral you put up. The second point – be prepared to lose the collateral you offer. For example, if you put up your car in exchange for a secured instant loan online, be ready to lose it. Otherwise, you shouldn't go down this route at all because there's always a chance of you defaulting on your loan and losing your collateral. Lastly, make sure you carry a correct estimation of your collateral's worth before visiting a lender for an unsecured loan.

Related Blog - 5 Scenarios Wherein a Business Loan Can Save the Day

Wrap Up

The above article illustrates the difference between secured and unsecured loans and what goes behind getting both types of loans approved. Now that you know the difference between the two, it's up to you to decide the kind of loan you want for your business. You should base your decision on how much you need and your repayment ability. If you're looking for a platform that provides quick and easy access to business loans, you can always trust KreditBee. It is India's leading personal loan platform that offers instant loans online. To get more information on how you can avail of a business loan, email us at [email protected], and we will take it from there.

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