Typically in India, businesses find it easier to avail secured business loans than unsecured business loans. Secured business loans enable business owners to avail credit at low interest rates. But a large percentage of businesses prefer unsecured business loans to secured business loans as unlike secured business loans, unsecured business loans do not require borrowers to pledge assets or properties as collateral. Hence, the businesses can avail credit despite lack of adequate collateral.
Of late, new age lending institutions allow borrowers to choose from a variety of unsecured business loan products. By implementing the latest in financial technologies (fintech) to assess creditworthiness of borrowers based on real-time financial data as well as other traditional and non-traditional sources, fintechs are able to disburse business loans in as short time span as 72 hours. However, different unsecured business loan products vary in a number of aspects including– interest rate, repayment period and eligibility criteria. Nonetheless, many businesses still opt for unsecured business loans due to a number of reasons.
7 Reasons Why Entrepreneurs Opt for Unsecured Business Loan Products
Collateral Free Credit
Each entrepreneur needs credit to start a new business or expand an existing business. But many business owners lack adequate property or assets to be pledged for availing secured business loans. As unsecured business loans are collateral free business loans, it becomes easier for small business owners to fund their financial needs despite lack of adequate collateral.
A Variety of Unsecured Business Loan Products
Each entrepreneur has an option to choose from a myriad of conventional and technology-driven unsecured business loans. For instance, a business owner can fund his financial needs through term loan, overdraft, business line of credit, or business credit card. Likewise, he can opt for technology-driven credit products like point of sale finance to avail credit based on monthly debit and credit card sales. Hence, an entrepreneur can easily maintain a positive cash flow position by selecting the right unsecured business loan product.
Simple Application Process
Many lending institutions allow borrowers to compare various unsecured business loan products and apply for the right business lending solution through their websites. They even keep the documentation and paperwork minimal. Hence, it becomes easier for entrepreneurs to compare the business loans provided by various lending institutions. Also, they can apply for the appropriate business loan product without putting extra time and effort.
Simple and Fast Disbursement Process
Often lending institutions require additional time to process and disburse secured business loans than unsecured business loans. That is one of the reasons why many entrepreneurs opt for unsecured business loan products to accelerate access to credit. The unsecured business loans further help entrepreneurs to fund immediate financial needs and improve cash flow position. Many lending institutions nowadays leverage technology to disburse unsecured business loans within 72 hours.
Shorter Repayment Period
Most lending institutions provide unsecured loans to business owners as short-term credit. The borrowers are required to repay the debt within one to three years. However, the repayment period differs from one unsecured business loan product to another. For instance, many fintech companies allow borrowers to repay POS-based loans through daily installments. These loan products help entrepreneurs to fund financial needs without incurring long-term liability. The shorter deadlines even make it easier for them to keep the cash flow position positive.
Flexible Repayment Options
The repayment period differs across business loan products. The lending institutions require borrowers to repay term loans through equated monthly installments. But the new age lending institutions allow entrepreneurs to repay the debt in a convenient and flexible way. They even allow the borrower to choose from multiple repayment options. Many lenders even allow entrepreneurs re to repay debt early without charging any penalty or foreclosure charges. Hence, the entrepreneurs can always repay the debt without impacting cash flow position.
No Need to Share Ownership
Many entrepreneurs nowadays set up and expand businesses by availing funds from venture capitalists and angel investors. But no entrepreneur can take advantage of these alternative funding options if his business plan does not impress the venture capitalist or angel investor. Also, they need to share ownership with the venture capitalist or angel investor to avail fund without incurring debt. The unsecured business loans help entrepreneurs to start and expand businesses without sharing ownership or sacrificing managerial control.
On the whole, many entrepreneurs opt for unsecured business loans to access credit in a faster and simpler way. They can even reduce cost of credit and maintain positive cash flow position by choosing from an array of unsecured business loan products. However, it is always important for entrepreneurs to evaluate the pros and cons of individual unsecured business loan products to decide the right funding option. They should also understand how to qualify for business loans so that the loan application process remains hassle-free.