Misconceptions About Unsecured Business Loans

Do you research loan options before deciding on one for your business? If so, could you recommend one to your friend with five advantages and disadvantages? Perhaps, not. The reason for this is because the majority of consumers are unaware of the nature of business loan products. As a result, they end up choosing the wrong loan product based on beginner advice. If we go deeper into the concept of a business loan, we will discover that unsecured loans for business have a lot of misconceptions attached to them. However, before we disclose the myth, let us first understand what an unsecured business loan is.

What is an Unsecured Business Loan?
A popular financing option, an unsecured business loan is offered to customers without having to pledge any form of collateral to the financial institution. This form of business loan is offered based on an applicant's credit score, financial documents, age, income etc.

An unsecured business loan is appropriate for people who do not have any assets to put up as collateral. Furthermore, if your company has a high level of market credibility, you may be eligible for a higher loan. Unsecured small business loans are a boon to many business owners. Despite that, many myths and rumours surround this kind of loan. But, worry not. Today, we will debunk all the myths about unsecured business loans in India.

            Also Read: Why Unsecured Business Loan Is A Better Option For Small Businesses

10 Myths about Unsecured Business Loan

1- You Have No Liability
Sometimes, the term "unsecured" gives out the message that borrowers are not responsible for the loan liability. After all, they are not putting up any collateral for the loan. That seems to imply that if they do not make their payments, they would not have any problems. However, this is not the case. Even if borrowers do not put up a business asset as collateral, they are still responsible for paying it back.

For example, as part of the application process, certain lenders may want you to provide a personal guarantee. When you apply for a loan, you are putting your credit score and personal assets on the line. The lender may try to recoup the debt by seizing your personal property if the business fails. They might even take a legal route to recover their debts.

2- They are for Small Businesses Only
Some people think that unsecured business loans are good for small businesses only. They believe that this form of loan can be used for only little amounts of money. As a result, big businesses still have to visit the bank. Again, this is one of the biggest myths. Many companies provide access to substantial funds in the form of unsecured loans.

For example, you can get a loan range from Rs 5 lakhs to Rs 25 lakhs. Some companies may provide larger amounts of funding depending upon the financial health of your business.

3- Only Banks Provide Unsecured Business Loan
In India, the financial model has changed dramatically in recent years. Banks are no longer the only means of obtaining funds. A large number of lending institutions have entered the market. These alternative sources are a viable choice for obtaining unsecured loans at the lowest possible interest rates for business loans. The entry of various financial lenders has benefited business owners who have been denied a loan from traditional banks.

4- They are the same as Business Cash Advances
This is one of the most common misconceptions many business owners have. A business cash advance is funding granted against your credit card sales in exchange for a share of your monthly credit card earnings. Unsecured loan for business, unlike cash advances, assist business owners with a variety of funding challenges. However, both business cash advances and unsecured loans are a type of business loan but with a different meaning.

5- Interest is the Only Crucial Aspect
Borrowers only consider interest rates when applying for a loan. But what if you get a lower interest rate instead of the amount you wanted? Your lender may offer a cheap interest rate in exchange for a higher cost. It is advisable to consider all the factors and not just unsecured business loan interest rates to achieve the maximum benefit of your loan.

            Also Read: Some Common Myths About Machinery Loans