This is mostly to avoid risking their money in case of non- payment of loans. In case, the lender is not able to make the monthly payments and eventually becomes a defaulter, the lender has the option to foreclose the collateral and likewise cover his money.
Collateral
Hence, it goes without saying that the collateral that is wanted by the lender has to have a value equal to or greater than the loan amount. Most people mortgage their house, or their car or their Fixed Deposits as well.
However, this puts a lot of pressure on the borrower as he is constantly worried about the fact that his inability to pay up might end up in his losing the house or the object of collateral altogether. This can actually have adverse effect on his performance.
Unsecured Loans
Loan for business without security are unsecured loans and they help the borrower to loan money without mortgaging anything. Of course, in return, he does have to agree to a high rate of interest.
But most borrowers agree to that, rather than risking their own property. A lot of paperwork can also be avoided when one does have to submit the additional papers of the collateral.
Moreover, seasoned bankers are often quite sure about a borrower and they can more or less tell from the records whether it would be essential to ask for a collateral from the person. Also, at times, stressing too much on providing a collateral might discourage borrowers altogether if they really do not have anything to offer.
Business Loan
In fact, the higher interest rates bring them more profit than the collateral at times and this is why they agree to it. Of course, just because it is an unsecured loan, some might feel that it is okay to not pay off the loan and the bank would not be able to seize property or any other thing like that.
However, if the bank has reason to believe that someone is willfully delaying the payments, then they can take legal proceedings against the borrower and send him a court notice.
Financing institutions like Bajaj Finserv offer business loan without collateral and it is of great help to the borrowers. They enjoy a peace of mind and can put their heart and soul into the business and work towards making the payments on time.
It is essential to have a good credit score to approach a financial institution to get an unsecured loan approved and if there is a good business plan in place, there is no reason why one should not be able to pay off the loans on time. This is how an economy grows and it paves the way for bigger business ideas in future.
Also Read: When is the Best Time to Get a Business Loan
