Business loans are one of the best and of course, most availed business fundings of the present day. Business loans are considered a faster and safer way to get fund for businesses as compared to other sources such as taking monetary help from relatives or friends, crowdfunding or bootstrapping.
Business loans generally come in two variations – secured business loan and unsecured business loan. A secured business loan is when the loan is backed by any of the assets of the borrower. On the other hand, an unsecured business loan is taken without any collateral. An unsecured business loan is sanctioned depending on the repayment capacity of the borrower.
When your business is new and you are in need of a business loan, a secured business loan becomes a better option. Getting an unsecured business loan at this stage of business seems difficult as being a new business owner you may not have a high business turn over to show in support of your unsecured business loan. Hence, applying for a secured business loan gives you higher chances of approval. Not only the higher chances of approval, but a secured business loan also comes with many other added advantages. Let’s explore more benefits of a secured business loan.
Benefits of a Secured Business Loan
- Lower Interest Rate
The interest rate of a secured business loan always comes as a reasonable interest rate. The ‘risk factor’ is always less for the lender, hence the lenders provide business loans at a comparatively lower interest rate than an unsecured business loan. A business loan with a high-interest rate can be a hindrance to the growth of the business as the EMIs of the loan are going to be of high amount.
- Faster Processing
If your need for money is really urgent then a secured business loan can help you to get the desired money faster. As lending money carries lesser risk at the lender’s end, lenders not much hesitate to lend you money. The eligibility check is always stringent when it comes to unsecured business loans. So the time taken by the lender to check the business loan eligibility is a quite long one. But if you apply for a secured loan, you can get the loan amount faster as the lender only needs to evaluate the market value of the collateral before they sanction the loan.
- Better Repayment Terms
The loan tenure of a secured business loan is a quite long one. The longer tenure period ensures small EMI amount. When your business is at the initial period, paying out hefty amounts in EMI may appear to be burdensome. Smaller EMIs keep your business move on without much liabilities.
- Scope for Negotiation
When you are equipped with valuable collateral to put up against your loan, getting a loan becomes easier. Not only one can say easy, but having collateral gives you the leverage to have a negotiation with the lender. You can shop around for the lenders who are ready to give you the maximum amount of loan against your asset. Not only the lender, one gets a scope to negotiate the interest rate too.
- Higher Capital Amount
The loan amount of a secured business loan depends a lot on the value of the collateral. Even if your business is a new one or the net worth of your business is less, you can still get a business loan of the high amount if your loan collateral is of high value. Loan collateral enhances your creditworthiness.
- Can Avail Even If You Have a Low Credit Score
If you are opting for an unsecured loan, the collateral is one of the most important checklists of the lender. As there is no security against the loan, the lender checks the past credit behavior of the borrower to understand the potential risk in lending. But when it comes to a secured loan, lenders generally give out loans even with a low credit score as in the case of non-payment of EMIs, the lender can sell the collateral to get the loan amount back.
- Enhanced Chances of Qualifying
The chances of getting the approval on the loan application enhance when you add security to your loan. Most of the secured loan application gets sanctioned as the risk of turning the loan into NPA is close to nil in secured loans.
- Uninterrupted Ownership on the Collateralised Property
The best about secured loans is that the collateralised property can be still be used by the borrower. In order to avail the loan, the borrower has to submit the mother deed of the property to the lender. But the property can be used as it was used before the loan process. For example, one can continue to live in the house which is used for loan collateral purpose. But if it happens that the borrower defaults the loan, the house has to be evacuated.
The Words of Caution
A secured business loan comes with numerous benefits but never to forget the fact that it comes with a risk on your collateral too. One has to be careful about the repayment of the loan as being unable to pay off the loan may make your asset slip off your hands. So, if you have applied for a secured business loan, you must maintain a disciplined loan repayment schedule.