For an SME that has access to assets you can use as security for a loan, a secured business loan is a practical alternative to unsecured loans. When you pledge collateral for a loan, you can get access to a large loan amount as well as a longer loan tenure compared to an unsecured business loan. The interest rate for secured business loans is also lower compared to collateral-free loans.
This is a perfect option for businesses that are involved in manufacturing and trading or a retailer who sells online or offline and own assets to pledge.
What are the types of secured business loans available to me?
Secured business loans can be of three types, based on the amount of funding needed, your repayment capacity, and the frequency of cash flows in your business.
1. Short-term business loans
A short-term secured business loan gets you access to a small amount for a loan tenure of around 12-18 months. Depending on the type of collateral you have to offer and your relationship with the lender, you may be able to extend the loan tenure up to 60 months. If you have an immediate funding requirement such as machinery repair, employee salaries, etc. this type of business loan may be a good option.
2. Intermediate-term business loans
These are larger ticket size business loans that are accompanied by a longer loan tenure. The loan tenure usually ranges from 3-5 years, and most lenders also offer flexible EMI options. This type of business loan is perfect for higher-value investments like buying equipment, expanding property, renewing property lease, etc.
3. Long-term business loans
When you need to make a large investment for your business that requires a lump sum amount, a long-term secured business loan is your perfect choice. This type of loan offers attractive interest rates and longer loan tenures that can go up to 20 years. With such business loans, you can buy a new property, invest in a new segment of the business, or expand the size, and scale of your business.
What is the difference between a secured business loan and an unsecured business loan?
Lenders will offer you different collateral terms, interest rates, amounts, and loan tenures based on whether you need a secured or unsecured business loan.
- Collateral – To get a secured business loan from a lender, you will need to provide the lender with some form of collateral or security. Collateral is usually not required for an unsecured business loan. Learn what type of collateral lenders will accept for a business loan.
- Interest Rate – When you apply for a secured business loan, lenders will offer you lower interest rates compared to an unsecured business loan because of the collateral you provide.
- Loan Amount – A lender will offer you a larger ticket size loan when you apply for a secured business loan. This is also because you are offering them some form of security in return, and they have some guarantee that you will pay your EMIs on time.
- Tenure – Lenders will offer you longer loan tenures depending on the type of secured business loan you get. These can range from 12 months to 20 years! The loan tenure for an unsecured business loan is usually shorter than that for a secured business loan.
When you apply for a business loan with CreditEnable, we find you the right loan product and lender that perfectly matches your business needs. In addition to the traditional assessment methods used by lenders, we also use the information you provide, like your bank statements, GST returns, and other factors, to find the right match for your business.
CreditEnable’s secured business loans are customized to the financing needs of Indian SMEs. Our service is 100% digital and free, so you don’t need to waste any time, energy and money finding the right business financing.