Why Unsecured Business Loans Are Safe For Your Small Business?
The previous year was good for Sukhdev Rana’s toy manufacturing business. In less than a year, the company made a break even. Now, Mr Rana wanted to expand his business. However, his idea was hindered due to lack of funds. His friend advised him to take a small business loan stating that it was a very safe option.
Let’s look at the reasons why a small business loan is a safe option for small business companies:
Collateral is a major requirement for most loans. However, this is not the case for an unsecured business loan. This is a very easy and flexible way to obtain funds. You don’t need to worry about loss of assets in case of a default on the loan.
Flexible Repayment Options
This is one of the best features of an unsecured business loan. Borrowers have the option to choose between different repayment options. You have the option to repay the loan on a daily, weekly or monthly basis. Some lenders even link the repayment of the loan to the operating cycle or sales of the business. As repayment is directly linked to business sales, there is no additional pressure on the borrower to repay when business is slow. This puts the borrower in a better position regarding loan repayments.
No Restriction on Usage of Funds
Most loans are assigned for a specific purpose. For example, an education loan is meant to be used for paying college fees. However, in the case of an unsecured business loan, the lender doesn’t impose any restrictions on how the funds are deployed. Thus, in the above case, Mr Rana can use the loan for any purpose such as funding daily operations or purchasing raw materials. In fact, the loan amount can also be channelled towards marketing and advertising the business. Thus, in case you don’t have the funds to put up billboards in the city, a business loan might be an option.
Uninterrupted Business Operations
Cash is very crucial for Small and Medium Enterprises to meet their day-to-day operations. For instance, Mr Rana needs to procure raw materials, pay salaries to his employees and clear the utility bills. Additionally, he should also be ready to tackle any unexpected expenses. Hence, lack of funds can seriously impact the company’s longevity. Approaching a lender for funds is a good idea during such times.
However, regular loans often have a huge processing time. This can throttle the company’s growth opportunities. This is when unsecured business loans are most useful. The approval process is quick and the disbursal of loans swift. This ensures that there is no interruption in business operations.
What Happens in Case of Default
An unsecured loan means that there is no collateral attached to the loan. However, it is not a good idea to default on the loan. Once you default, it stays as a remark on your credit score. In case you wish to expand in the future, your company will find it very difficult to avail loans. Ultimately, defaulting could also lead to unnecessary legal hassles. Many lenders offer to further simplify the repayment. In case you are unable to meet the schedule, it is best to contact the lender. You can work out a revised repayment plan. This way, you can build a long-term relationship with your lender.
Due to the above reasons, unsecured business loans are one of the safest options. Thanks to these loans, many business owners like Mr Rana can avail funding for their companies.