Secured Vs Unsecured Business Loans: The Difference and How it Matters for SMEs

To sustain their business growth, small and medium enterprises (SMEs) sometimes need additional working capital, and the most direct way of getting it is to apply for a loan.

With business loans coming from banks, non-banking finance companies (NBFCs) and private money lenders, SMEs have multiple sources to get funding for their operations and expansion. However, these credit options have their pros and cons and should be understood to choose the most helpful alternative.

Secured vs Unsecured Business Loan

Most companies are familiar with the idea of a secured business loan that requires them to offer the lender some collateral as a security against the funding provided. The credit here is issued when the borrower hypothecates a financial asset to the lender. The hypothecation ends only when the entire principal, together with interest and any other associated charges, is fully paid off.

Banks and most other conventional sources of finance are more willing to offer secured loans because from the lender’s point of view, these carry less risk than unsecured funding.

The main advantage for a borrower taking a secured business loan is that the interest on such credit is lower since a guarantee of their asset backs the loan.

Conversely, the challenge is that lenders, particularly banks, accept only selective assets as collateral. They need to ascertain that such an asset can be liquidated in minimum time in case the lender defaults on payment. Due to this condition, many SMEs find it difficult to get secured loans. They may not have assets that are considered as relevant or sufficiently valuable by the lender.

An unsecured business loan, on the other hand, is granted without any collateral. A non-banking finance company with a digital lending model offers such loans based on the creditworthiness of borrowers. If a business has a successful operational history of at least one year, and there are no blots on its previous credit history, it is eligible to get its unsecured business loan from a digitally operating NBFC, also known as a FinTech company.

For an enterprise that has no collateral for business loans, it is natural to opt for an unsecured loan even though the interest charged on this is slightly higher than on secured loans. However, some FinTech companies have created additional benefits with their policies that make unsecured business loan better than secured loans on multiple fronts.

While looking at secured vs unsecured business loan, these are some of the advantages that make the latter more valuable for start-ups and SMEs:

  • An unsecured business loan is available for short terms – borrowers can take a working capital loan for a tenure of less than one year and thus avoid the burden of debt on long term.
  • A FinTech lending company usually has a fully digital application process for its unsecured loans – it takes less than 10 minutes to complete the application and the documents to verify the information therein can also be uploaded online.
  • The time taken to receive funds from a FinTech in the business bank account is less than a week – the application is usually reviewed on the same day when it is submitted, and, if approved, the sum is disbursed in the next 2-3 business days.
  • A loan processing fee of up to 2% and the interest rate are usually the only charges on a FinTech company’s unsecured business loan – the borrowers do not have to pay any documentation fee, loan insurance premium, legal fee and other hidden charges.
  • The repayment options are more flexible for unsecured loans issued by FinTechs – the borrowers can pay off the loan sooner than the predetermined schedule, and maybe charged a nominal pre-closure charge for making the payment.

For an SME that does not have financial assets to hypothecate and needs faster access to cash, will find unsecured business loan better than secured funding.

Here is a summarised view of the features for Secured Vs Unsecured Business Loan:

Secured Business loans from Institutional lenders Unsecured business loans from FinTech companies
Collateral required Backed by a financial asset for collateral No collateral / Security
Advertised interest rate (annual) Between 12% and 24% Between 18% and 24%
Loan processing fee >= 2% <= 2%
Extra charges May have extra charges for documentation, loan insurance and other statutory requirements No extra or hidden charges
Time to get funds into account 1 to 6 weeks 72 hours
Loan application process Digital and paper-based, document-intensive loan application Fully digitalised loan application and document submission
Repayment of loan Only through EMIs Flexible repayment options

Capital Float is a leading FinTech company that asks for no collateral for business loans. We have customised our loans for a variety of business purposes and working capital needs. Our short-term unsecured business loans are issued purely on the creditworthiness of the borrowers and the potential of an organisation to pay back in time. We evaluate every loan application within minutes of its submission to provide the decision on the same day.

[maxbutton id=”5″ url=”https://safe.capitalfloat.com/cf/default/register?utm_source=blog&utm_medium=web” text=”Apply for unsecured business loan” ]

 

If you have an attractive business opportunity to capitalise upon, do not put off your plans. Talk to a representative in our customer service team at 1860 419 0999 and avail yourself of the benefits of a loan without collateral.

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Why Online Vendors Should Apply for Capital Float’s Online Seller Finance

Are you an online seller looking to optimize and grow sales? Given the highly competitive nature of e-commerce, it’s always advisable to have a cash flow option handy for successful expansion. Furthermore, you wouldn’t want to lose out on market opportunities due to the lack of convenient financing options. And that, is where Capital Float comes into the picture.

In the cut-throat world of e-commerce, having a lucrative financing option at the right time is likely to translate into a significant competitive edge. There are three key occasions, wherein, an online seller may require rapid financing:

  • Respond to an increase in sales by purchasing inventory
  • To be prepared for seasonal fluctuations in revenue, and bridge short-term gaps in liquidity.
  • To widen product portfolio by diversifying into other product segments or to widen reach by operating on a new marketplace

Here are a few compelling reasons as to why you must apply for Capital Float’s Online Seller Finance to maintain your competitive advantage in the business:

  1. Flexible loans that are customized to your need

The exciting features at Capital Float’s Online Seller Finance ensure speedy expansion for your business in a simple manner. As an e-commerce vendor, you can raise funds from INR 1 Lac up to 1 Crore, depending upon your cash requirements. Furthermore, we provide you with effortless repayment modes for a loan tenure between 90-180 days. Our partnerships with multiple, leading e-commerce platforms enables you to acquire our e-commerce seller loans to operate and expand across different online marketplaces.

  1. A quick, hassle-free process

        a) Minimum documentation

To apply for our eCommerce seller loans, you need not furnish a heavy stack of documents. All we would need from you are your bank statements of the last six months and KYC documents credentialing you and your business.

         b) Zero collateral

We provide unsecured loans, meaning we don’t take collaterals as guarantee for loans. You won’t be asked to pledge your property or vehicle to avail a loan from us. Our loans are bereft of the anxiety that are often associated with loans against collateral.

        c) Loans against marketplace sales

Our motto is to help businesses to ‘Break Limits’. We understand that many a time, businesses with potential are hampered by the lack of finance. We are committed to change that. You can avail Online Seller Finance on the basis of your proven sales on e-commerce marketplaces, receiving up to 150% of your average monthly sales.

  1. Apply anywhere, any time

While financial institutions like nationalized banks, private banks and traditional NBFCs not only take weeks to sanction a loan, but they also have tedious application procedures, Capital Float ensures immense flexibility in the process. We have designed a handy mobile app through which you can apply for a loan from anywhere, as long as you are connected to the internet. The four-step online application procedure is not only user-friendly, but allows you to raise funds without losing on precious time.

External financing is an excellent tool for you to grow as an online vendor and keep operations smooth. Capital Float’s sole aim is to bridge the current gap in the market with innovative and flexible credit products for online enterprises like yours. That said, Online Seller Finance is just the product you need to fulfill your finance requirements in a smooth, hassle-free manner.

Wait no more. Take your online business to the next level with our online seller loans. Click here to apply.

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Digital Marketing for SMEs: Business without boundaries

Information availability and decision-making is becoming increasingly dynamic in nature. This constant state of change has impacted customer expectations and many organizations are grappling to keep up. Amidst this chaos, a few companies have found opportunities and strategies to leverage this change.

Most companies which are successful in understanding and fulfilling new-age customers’ expectations have exponentially grown and created very strong value propositions and brands in the minds of the customers.
Some proponents of change defining the business ecosystem today are big data, cloud computing, mobile and content. Digital Marketing as a science, art or technique sits right in-between all of these factors. Is digital marketing complex and difficult to understand? Is it a type of marketing that only large companies with large budgets can afford to execute? Read on to find out.

In many ways digital marketing has democratized business reach to consumers. It has presented a level playing field for small and large brands alike. This is one platform where intellect and ingenuity trumps everything else.
Applications of digital marketing are aplenty – from exploring new markets to growing a stronger brand in existing markets, all in a budget that you can decide and control in real-time.

In this day and age, the question isn’t whether you should do digital marketing, but rather, the pertinent questions are “how” and “where to start from”. Following are 5 simple things small businesses can implement to mobilize their digital marketing:

1. Website for E-Commence and Product Catalog
A website is just like a salesperson. It may need attention and hand-holding early on, but over a period of time, it becomes independent, yielding a steady stream of income. Do bear the following aspects in mind while building your website:
• Does your website have all the information that you would like your customers to know?
• Does your website provide your contact details in case the customer wants to place orders or make enquiries?
• Is it easy for the customers to navigate and find information about your brand and products?
• Is your website persuading customers to take specific actions?
• Is it easy to update information on your website?
Once you have all the content ready for your website, you can use one of the many website builders to set-up the framework. Most of these builders offer plenty of templates and customization options. In case you plan to sell your products online, some of the payment gateway companies can offer to set up the infrastructure for free. Sounds complicated? It’s not. You needn’t be a software geek to implement a fully-functional website.

2. Create local awareness about your business
It is quite possible that some of your prospective customers, even though located very close to you, may have never heard about you. Even if they have heard of you, they will resort to searching information about you on the internet.
Facebook and Google provide you with options to create local awareness and an identity on the internet. You can even place your business on Google maps to help customers locate you. All of this at little or no cost.

3. Catalyze word of mouth with referral schemes
Very few marketing campaigns can outshout the voice of a customer operating as a brand ambassador. While social media can intensify word of mouth, it takes experimentation and genius to go viral.
Win-win referral schemes help you achieve similar results with greater certainty.
There are plenty of plug and play tools which can help set-up referral schemes, leverage your customer’s social network and give your brand a fair chance of going viral. You can track and manage these schemes on the go. Much like your website, these tools are very easy to implement.

4. Advertise on Digital Media
It would be wise to advertise online if a good portion of your customers reside on the internet. Digital advertising unlike conventional advertising is highly targeted and permits small spends. You can choose from promoting your brand in existing markets to exploring new opportunities in new locations, all at the click of a button. And the good news is, all major online advertising platforms provide advertisers with account managers to help them set-up and run marketing campaigns. If you are lucky, you may even find free coupons to run your campaigns.

5. Email-Marketing to connect with your customers
Emails are a very convenient and effective way of communicating to your customers. You can use emails to inform your customers about new products, features and offers. Free guides and manuals can help your customers use your product better.

E-mail provides for two-way communication; feedback enables you to know if your email was received with a smile or a frown.

Much like this blog, you will find plenty of guides, free tools and services that can help you execute digital marketing. It may be tempting to do all of the above or possibly more to join the digital business bandwagon, but begin by evaluating your options and strategizing accordingly. If executed well, one or two targeted options are likely to provide better results rather than a scatter-gun approach.

Hope these points demystified digital marketing for you. So go on, roll up your sleeves and get ready to build a business without boundaries.

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Samarth is a marketing professional with expertise in Digital Marketing. Lead generation, customer engagement & retention, brand building and people development are some of his areas of interest. During his leisure he likes hanging out with friends & family, riding his bike to nearby destinations (sometimes even without a destination), watching movies​ ​​and reading.

​Samarth is a Marketing Manager at Capital Float.​

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