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Business Loan
Secured vs unsecured Business Loans - which is better for you?
Business Loans serve many purposes, like starting a new venture, expanding existing operations, purchasing equipment and managing cash flow. When financing your business, you have two options: secured and unsecured Business Loans. Let us understand how to select between a Business Loan - secured vs unsecured - based on your needs.
Secured Business Loans
A secured Business Loan is when you provide collateral, such as equipment, property or inventory, to secure the loan. Once the collateral is given, the lender places a charge on the asset. When the loan is repaid, this charge is removed. In case of default, the lender can sell the collateral to recover the loan amount. Some major features of a secured Business Loan include:
- Lower interest rates: As secured loans involve less risk for the lender, they usually come with lower interest rates than unsecured loans.
- Higher loan amounts: With collateral in place, businesses can often qualify for greater loan amounts, making it suitable for significant investments or expansions.
- Longer repayment terms: Secured Business Loans usually have longer repayment tenures, providing more time for the business to repay the loan and manage cash flow effectively.
- Easier approval process: The presence of collateral lowers the lender's risk, potentially making it easier for businesses, especially those with less-than-perfect credit, to get approved.
Unsecured Business Loans
An unsecured Business Loan does not require collateral. Some specific features include:
- Higher interest rates: As unsecured loans carry higher risk for lenders, they typically have higher interest rates than secured loans.
- Lower loan amounts: Unsecured loans generally offer smaller loan amounts, which may not suffice for large-scale projects or significant expansions.
- Strict eligibility criteria: Lenders often have stricter requirements, focusing heavily on your creditworthiness and business financials.
- Flexible use of funds: The funds can be used for various business purposes without restrictions, such as operational expenses, marketing or inventory purchases.
Secured vs unsecured Business Loans: Key comparisons
| Aspect | Secured Business Loan | Unsecured Business Loan |
|---|---|---|
Collateral | Required | Not required |
Interest rate | Lower | Higher |
Loan amount | Higher | Lower |
Repayment tenure | Longer | Shorter |
Approval process | More complex and more documentation due to collateral evaluation | Faster approval with less documentation |
Suitability | Suitable for businesses with large assets and needing larger amounts | Suitable for businesses without significant collateral and needing quick funds |
Also Read: What are the different types of Business Loans?
Conclusion
Choosing between a secured and an unsecured Business Loan depends on your risk tolerance, your business’s specific needs and your company's assets.
Consider applying for Axis Bank's 24x7 Business Loan, which offers the convenience of online application with minimal documentation and no collateral requirement. You can choose a tenure between 6 and 60 months and can get collateral-free loans of up to ₹75 lakh.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
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