logo
logo
Sign in

What is the difference between Secured and Unsecured Business loan?

avatar
Sheena Sharma
What is the difference between Secured and Unsecured Business loan?

A company before choosing a business loan needs to check the following:

  • To know the types of business loans available à secured business loans and unsecured business loans.
  • To find out the documents required to apply for business loan.
  • To get detailed information on both secured business loans and unsecured business loans
  • To weigh the advantages and disadvantages of secured and unsecured business loans.

What is Secured Business loans?

Secured Business Loans as the name itself suggests is a business loan against security. A company gets a business loan against the collateral provided to the financial lender as security. The collateral serves as a guarantee to the financial lender if the company defaults on repaying the business loan amount. The collateral is a financial instrument like a car, home, etc.

Upon receiving the request for secured business loans, the financial assesses the market value of the security and accordingly sanctions the business loan amount. The market value helps the lender to determine the business loan amount being sanctioned and it's usually less than the evaluated market value.

Banks are willing to process the application of secured business loans owing to being less risky when compared to unsecured business loans.

Big companies usually prefer secured business loans as they would be having security to qualify for the loan. Whereas MSMEs having no collateral do not opt for secured business loans.

What is Unsecured Business Loan?

Unsecured Business Loans are Business loans without security. The company need not provide security to avail of a business loan.

To apply for unsecured business loans, it is mandatory for the company to have a good credit score as it helps the lender ascertain the company’s capability to repay the business loan.

You can also read about: Udyog Aadhar

Micro Small and Medium Enterprises (MSMEs) owing to having no collateral find it favourable to apply for unsecured business loans.

Being unsecured in nature, these loans are perceived as risky by the traditional banks and thus, such loans are offered by Non-Banking Financial Companies (NBFCs) and online financial institutions.

CGTMSE loan (Credit Guarantee Fund Trust for Micro and Small Enterprise) is an MSME loan which is a type of unsecured business loans. Under CGTMSE loan, the MSME loan amount sanctioned may be up to Rs. 2 crores.

What is the difference between Secured business loans and Unsecured Business Loans?

Below detailed are the differences between secured business loans and unsecured business loans:

1. Loan processing:

Since secured business loans involve collateral, the loan processing takes a longer time as along with the documents being reviewed, the collateral also has to be valued.

Whereas Unsecured business loans are processed faster as the financial lender only evaluates the credit score of the company along with other documents.

2. Collateral:

Secured business loans are accessible only to big companies as it requires collateral.

Unsecured business loans are favourable for MSMEs as there is no need of collateral.

3. Eligibility Criteria:

The eligibility criteria for secured loans are stringent compared to unsecured business loans.

4. Documents to be submitted:

The documentation required for unsecured loans is minimal and basic compared to the secured loans.

FAQs:

1 What is the MSME loan interest rate?

MSME loan interest rate is the monthly payable instalment against the MSME business loan availed.

2 What are the documents required for business loan to obtain the CGTMSE loan?

The documents required for business loan to obtain the CGTMSE loan are the application form, Business registration copy, Business plan, the CGTMSE loan coverage letter, passport-sized photos of the applicant, etc.

3 How is business loan EMI calculator used?

The business loan EMI calculator is based on a formula wherein the required details are to be incorporated to know the monthly payable EMI.

4 Who sanctions the CGTMSE loan?

Regional Rural & Small Finance Banks and Non-Banking Finance Companies are authorized to sanction CGTMSE loan.

collect
0
avatar
Sheena Sharma
guide
Zupyak is the world’s largest content marketing community, with over 400 000 members and 3 million articles. Explore and get your content discovered.
Read more