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In every business, a sufficient amount of funds is as crucial as clients and customers. In case you are facing a financial crisis or looking for maximizing your business, you need to have adequate financial backing to keep the business operations running. Nevertheless, getting sufficient funds can be a tedious and challenging procedure for a small business owner. There are innumerable numbers of lending companies which provide a variety of business loan products in order to fulfil the needs of the SME owners. Nevertheless, while searching for an SME business loan in India, sometimes the borrower finds himself/herself at a critical phase. He/she needs to select one between an unsecured business loan and a secured business loan.

Maximum small business owners find both options equally appealing and feel there is no such a big difference between these two loan options. However, selecting the right one is vital as business loans play a vital role in the progress of the business. Thereby, you should know the major difference between secured loans and unsecured business loans in India! ( https://www.indifi.com/collateral-free-business-loans-india/... )

Secured vs. Unsecured Business Loans

Collateral needed

A secured business loan always gets backing from an asset which has a financial value. This asset can be a vehicle, gold, real estate, or any other thing for this matter. One essential thing here is that this asset or property given as collateral can be liquidated by the lending firm in the case of default.

But, unsecured business loans in India don’t get backing from any collateral or asset. The SME loans without collateral help the borrower to have finances without providing any assurance to the lending firm.

Yearly interest rates

A borrower usually chooses a secured business loan due to its lower interest rate on credit since their asset’s guarantee backs the loan.

For a company which has no asset for a business loan, usually chooses an unsecured loan albeit the interest rate is higher than secured loans. Nevertheless, some FinTech lenders like Indifi have made extra advantages with their policies which make unsecured business loan better than secured ones on different fronts.

Risk profile

Banks and other traditional financers want to provide secured loans because they believe that these carry less risk than unsecured financing.

On the other hand, unsecured business loans are a perfect choice for small business owners who are unable to pledge collateral as security. These SME loans in India are usually provided by NBFCs like Indifi and the eligibility of unsecured business loan set by them is also easy to fulfil. Moreover, unsecured business loan requirements are restricted to very minimal documentation.

Loan processing fee

A loan processing fee for secured business loans from traditional lenders is charged more than 2% which an SME owner finds tough.

However, a loan processing fee of up to 2% and the rate of interest generally the single charges on a FinTech lender’s unsecured loan – the borrowers don’t require paying any legal fee, loan insurance premium, any documentation fee, and other hidden fees.

Payback options

A tradition lender accepts payments just through EMIs.

However, the repayment choices are more flexible for unsecured loans offered by FinTech lenders like Indifi. A borrower can pay back the loan earlier than the pre-decided schedule and may be charged a minimum pre-closure fee to make the payment.

Loan application procedure

A traditional lender usually accepts a paper-based or digital and document-intensive loan application.

Nevertheless, a FinTech lender has a completely online application procedure for lending unsecured loans. The process takes less than 10 minutes for completing the application and verifying the documents which can be uploaded online also.

Conclusion

Your creditworthiness will impact in deciding your loan securing capacity. At Indifi, we provide collateral-free SME business loans to meet all SME financing needs. Hence, we measure the borrower’s creditworthiness to check credit scores. All our loan products can be repaid easily in monthly instalments.
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