Secured SME loans or unsecured SME loans? As an entrepreneur, how do
you choose the right loan for your specific business needs? Let’s
understand the difference between the two before you apply for a loan.
A secured business loan for SMEs is a traditional business loan where
the lender offers a large sum of money against a collateral or
commonly known as ‘security’ like property or gold. If the loan
applicant fails to repay the principal and the interest amount, or
both, during the fixed tenure, the lender has the right to sell off
the collateral. Whereas, an unsecured
business loan for SMEs does not require any
collateral like property or gold. If you’re getting an unsecured
business loan from a fintech company, it is as simple a matter as
applying for the loan online and getting the money disbursed in your
business bank account in as many as a few hours.
Apart from this fundamental difference, let’s compare both the loans
to understand their functionality and utility better.
1. The size of loan amount
While a big loan amount needs security and tedious paperwork; a
smaller loan amount could do without it, and hence, such an SME
loan is granted very fast. Considering an SME’s business needs, they
can easily go for a smaller unsecured SME Loan without risking any collateral.
2. Degree of ease
For an SME, obtaining a secured business loan is a long process as
the lender requires security. It also involves heavy paperwork and a
longer waiting period for loan approvals. On the other hand,
collateral-free SME loans do not need heavy paperwork or more time,
making the disbursal processes quick and easy.
3. Loan tenure
The bigger the loan amount, the longer the tenure. A secured business
loan comes with a longer repayment period and fixed terms. On the
contrary, unsecured SME finance offers shorter tenures and flexibility
to repay the smaller loan amounts. If required, the loan applicant can
also switch to a secured SME loan to avail a bigger loan amount, but
one can’t switch from a secured loan to an unsecured one.
4. Loan processing time
Unlike unsecured SME loans, a secured SME loan requires a lot of time
as it entails scanning through heavy paperwork and verifying all documents.
Due to zero collateral requirements, unsecured SME loans need less
paperwork and time, making it an apt choice to meet financial emergencies.
5. Loan eligibility
As already mentioned, secured SME loan requires a loan applicant to
provide the lender with collateral and have a sound loan repayment
history, while an Unsecured SME loan does not require any collateral.
Exactly why, almost anyone with a favourable credit score can avail an
unsecured SME loan with ease.
While secured business loans can solve your bigger financial
quick and easy
unsecured business loans are always the best way to
aid your business when your financial needs are small. They are also
the best solution for immediate and unplanned expenses.