Adequate funding is as important as clients and customers for any business! Whether you are facing a cash crunch or wants to expand your business, ample financial backing keeps it going. However, availing adequate funds can be a challenging process for a small business owner.
There are plenty of lending institutions that offer different types of business loan products to meet the requirements of the small business owners. However, when looking for a business loan in India, the borrower often finds himself at the crossroad. He has to choose one between a secured business loan and an unsecured business loan.
Most small business owners find both of them equally attractive and feel there are no any major differences between the two. But choosing the right one is important as business loans play an important role in the growth of the business. It is therefore important to know the difference between the two.
Let us understand the basic difference between secured and collateral-free business in India.
Secured Business Loans
A secured business loan is always backed by an asset having some financial value. The asset can be real estate, gold, vehicle, or any other thing for that matter. One important thing here is that the asset provided as collateral can be liquidated by the lending institution in case of default.
Here, the owner retains the ownership of the asset but the lender holds deed/title till the tenure of the business loan ends. In case the borrower is not able to repay the small business loan, the lending institution has rights to take over the possession of the asset to recover the outstanding debt amount.
Generally, a business loan with security is useful for business owners who have an asset to pledge. Whereas small business owners find it hard to produce collateral.
Unsecured Business Loans
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On the other hand, unsecured business loans in India are not backed by any asset or collateral. The business loan without security allows the borrower to get funds without offering any guarantee to the lending institution.
Unsecured business loans are generally based on the creditworthiness of the small business owner. The things taken into account to grant business loan are business vintage (generally, it should be more than 2 years) and business turnover.
Unsecured business loans are an ideal option for small business owners who cannot provide collateral as security. These business loans are generally offered by NBFCs and the unsecured business loan eligibility set by them is easy to meet. Also, the unsecured business loan requirements are limited to very minimal documentation.
At ZipLoan, we offer business loan without collateral on easy terms and conditions and customer friendly policies. We ensure that every small business gets finance to meet its requirements. Therefore, we evaluate the creditworthiness of the borrower in a holistic fashion through our own product, ZipScore. All our business loans can be repaid in easy monthly installments.