|Posted on April 14, 2021 at 7:55 AM|
Loans are a part of the business. When a business is short of funds, it usually heads towards taking a loan for the business's survival or growth. A business loan can be either secured or unsecured. A secured business loan is a loan that requires security in exchange for a loan permitted by any financial institution. So, if in case, the borrower does not repay the amount, the lender can sell that security and can get his loan amount.
While on the other side, unsecured loans do not require any security against the loan granted. There are various institutions available that provide unsecured loans in delhi or any other metropolitan city. Here are the details that one should know about unsecured business loans:
Unsecured Business Loans
Unsecured business loans are loans that are granted without any exchange of security. These kinds of loans are suitable for all those businesses who do not own any asset, or need funds quickly or do not want to offer security in exchange for the loan. Unsecured business loans possess a high risk for the lender, but many institutions provide this type of loan.
Considerations for an Unsecured Business Loan
1. Up-front cost Involved
Up-front cost is a cost paid by a borrower to the lender as an amount of consideration for making a new loan. This fee is not deductible from the loan amount. In the case of unsecured business loans, usually, the up-front cost is low. However, sometimes there is no requirement of up-front cost if you apply for an unsecured business loan.
2. Time required for the procedure
The legal process involved in the approval of the loan is more straightforward in the case of unsecured loans. The whole process is always completed quickly, and there is no need for valuations required for this kind of business loan.
3. Asset Requirement
Unsecured business loans are the most accessible type of finance available for all the business-facing difficult financial conditions. There is no asset requirement in this case.
4. Cost of Unsecured loans
As the unsecured loans are granted without any need for security, the overall cost of this loan is generally higher.
Personal Guarantee on an Unsecured Business Loan
As mentioned above, Unsecured business loans are risky for the lender, because of which a lender may ask for a personal guarantee from the company director who wants this loan. Theoretically, a personal guarantee is a promise made by a person to repay the loan amount if the business cannot repay the same. It acts as a significant commitment as the promising person becomes liable to pay the debt amount in case of non-payment by the business. In the case of unsecured loans, the director may act as a personal guarantee.
Many financial institutions provide https://www.finwaycapital.com/unsecured.htm" target="_blank" rel="nofollow">unsecured loans in delhi or any other metropolitan city. These loans are the safest type of loans for a business as you are not putting any collateral in exchange for it. But still, a lender reserves the right to take legal action for the non-payment of the loan.