Unsecured Business Loans: Best Source of Capital for SMEs

31 Jan 2022

Small and Medium Enterprises (SMEs) form the backbone of the Indian economy. Their contribution at a local level and the domestic production keep the economic cycle of the country running. 

The last two years of a pandemic have been tough on all sorts of businesses in India but more particularly on the SMEs. Low growth in business caused by the pandemic has made it a hassle for these SMEs to secure loans for their future endeavors. A number of financial institutions have created an apparatus to provide these business loans in the form of credit. Usually, these loans are of two types – Secured and Unsecured business loans

While secured loans are a good way of getting credit for the enterprise, they usually tend to become burdensome on SMEs. At the same time, the unsecured business loans do not lay the same burden as they are offered without the SMEs having to pledge their assets as collateral. Let us properly understand how Unsecured business loans can prove to be extremely beneficial to SMEs:

  1. Low levels of risk
    The primary difference between secured and unsecured business loans is the pledging of the assets, in other words, collateral. Secured business loans are only provided when the enterprise is ready to put up something as collateral while unsecured loans can be taken without pledging the companies assets. This has become a choice of many new companies as it will not risk their companies’ existence in tough times like the pandemic.
  2. Easy Payback
    The tenure of paying back these loans is flexible and easy as they have less intense procedures as compared to secured loans. The payback time usually ranges from 12-36 months, which is plenty of time for any SME to make a little extra profit and give back the loan. Usually, secured loans have structured periods that put a lot of pressure on the enterprises and disrupt their functioning.
  3. Simple and faster process
    In the quickly changing times, like that of the pandemic, the requirements of small business changes quickly. In a fast-moving world like this, SMEs cannot depend on the generic speed of getting a secured loan. They need it faster with less paperwork. This is how unsecured business loans enter the Indian domain as a rescue ship. These loans are processed at a much faster pace without requiring large intense paperwork.
  4. No shared ownership
    Usually for SMEs to secure funding for their business they have to share a part of their ownership with the large players or the so called angel investors. This leads to the SMEs’ decision making getting influenced by these investors and thus taking away the autonomy from the pre-decided plans for the company. But unsecured business loans do not demand any of this but provide loans directly. 

Any SME owner must compare the pros and cons of both the secured and unsecured business loans to fully understand what suits their requirement best. They should also give due consideration to choosing the right financial institution to get the loan. Any place that provides low-interest rates, minimum documentation, and curates the plans according to specific needs, like done at Oxyzo, is the ideal pick.