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Working Capital Management In A Post-Covid World

Is your company struggling to maintain its cash flow in this period of economic uncertainty? Then, you must be vigilant about your working capital and properly manage it so that your day-to-day transactions run smoothly and liquidity is optimum. What is meant by–Working Capital and its Management? Working Capital, in its basic sense, is the difference between the company’s Current Assets (which include cash in hand, expected payments, raw materials in stock, and finished products) and its Current Liabilities(debts and account payables). It denotes the liquidity scenario of the company to manage its day-to-day expenses and describes the company's efficiency and financial health. Working Capital Management is the dedicated task of managing working capital to ensure that all the company's day-to-day transactions run smoothly. How has Working Capital been affected in the post-COVID world? The pandemic has adversely affected the financial transactions of the companies; the supply chain system has been disrupted, and the Client is delaying the payments. In these uncertain circumstances, companies are trying to slash the pay of employees, delay the payment of their supplies, and cut down variable expenses. All these factors pose a threat to working capital management and create room for companies to look for capital financing options. As a thoughtful businessperson, you must be thinking about the measures you need to take to manage your working capital in these financially stressed times. Read ahead to learn about all the measures you need to take. Working Capital Management strategies will be followed for smooth business transactions post-COVID. Inventory Overhaul: In the post-COVID phase, consumer demand has been variable, and supply and logistic services are less efficient, which means all these factors call for proper inventory management. An appropriate business strategy in these uncertain times would be to maintain the balance between the just-in-time and just-in-case approaches for inventory management so that you do not spend more on idle inventory, but at the same time, you should maintain sufficient stock to evade potential losses. Maintaining high inventory involves additional warehousing, insurance, and transportation costs, which eat up the working capital, so your company should resort to judicious and real-time demand forecasting strategies based on updated statistics. Business Process Restructuring: In the post-COVID world, the delay in supply chain functions, variable government regulations, and the liquidity requirements of all organizations have all resulted in the delay in client payments. So, you need to expedite your pending payments to maintain optimum working capital and manage your outflow. In this digital age, companies are now resorting to electronic invoicing systems to help streamline payments and keep a digital track of receivables. Similar processes should be incorporated into various functions to properly manage the cash flow. Deploy Robust Forecasting Framework: Since market forces are dynamic after COVID-19, you need a robust forecasting system to efficiently predict unplanned cash requirements and other variable short-term and long-term capital financing requirements. If the forecasting system is realistic, you can accurately predict your receivables and working capital requirements. Capital management should be optimal, neither too low (which affects the company’s operations) nor too high( which reduces the chances of earning returns on unused funds). Keep doors open for Additional credit sources like capital financing and working capital loans: Businesses need to keep track of the market scenario, and if the situation arises, doors should be kept open for additional credit sources. Sufficient cash flow should be maintained at any instant, so vital functions are not hampered. Based on the requirement, you can choose from various capital financing options, such as a working capital loan or capital loan. Extending a helping hand to your business drivers: The levels of uncertainty are distributed among the businesses based on their financial capabilities, which causes small businesses to be more affected by the changing market conditions. So, it’s the moral obligation of strong businesses to support their Supply chain partners by facilitating timely payments and providing continuous supply orders. If these small companies are in a cash crunch, they should also take the support of capital financing services. [B-02] Looking Ahead Challenging situations not only pose dangers, but they also give companies a chance to showcase their strength and come out stronger with flying colours. This post-COVID situation also provides them with an opportunity to think outside the box and to develop new dynamic business models and more efficient supply chain functions.

08-11-2023

Tips & Advice

Financial Habits To Better Manage Your Business Growth

Habits make a man. At least you have heard so all your childhood. The need for good habits is so vital that your entire personality depends on them. The same applies to business owners. Financial habits make or mar your business. Despite having the best resources, entrepreneurial abilities, and strategy, several business owners fail to adopt the right financial management habits. What do Business Owners consider as Growth? Not many owners realize that adapting to the right financial practices and habits ensures steady growth. Growth in business does not mean mere profits and numbers. If you own a small business, you might want to measure growth by the categories of customers who keep coming back, the demand for your products or services, loyalty in the markets, and the reputation you build over some time. This might not seem easy to achieve, but adapting a few essential habits will help you get there—over time! Review your Finances While your business will have difficulties, you must understand the “pattern” of your expenditure and earnings at the outset. Decide if you need a business loan, a loan against property for your business, or a secured business loan; based on the review of finances Check up on seasonal changes in the pattern, if any. Ensure you understand where the maximum income generation is happening while tracking the loss areas. Monthly reviews will be the right target to set. You have to understand how well your business is operating before sniffing out the weaker bits of operations. Maintain and Manage the Business Budget It is vital to have a budget. It gives you a goal and a limit. While limitations must not pull you down financially, setting a goal (with an upper limit) is motivating. This helps you track your profit and expenses throughout the month. It also allows you to understand what aspects of your business need improvement. Once you set the budget, indulge in end-of-month comparisons with the business results. Budgeting gives you the power to understand the problem areas of your business. It also helps you make informed decisions. Tackle Taxation, Liabilities and Debts Discipline your business dealings before it's too late. It makes no point earning premium profits if your liabilities, debts, and loan ratios are not declining. Save ample money to pay taxes. These must be paid on time. The penalties for missed payments can negatively influence your business. Engage in debt reduction. While short-term debt fuels business growth, you need to ensure that you reduce it to the minimum. Unnecessary debt is not advised. Work on repaying business loans quickly. When picking a business loan, research the market to understand the best bet for your needs. Piramal Finance is a reputed name that offers a wide array of business loans. Both big and small businesses can benefit from a variety of loan products. The top business loan options available with Piramal Finance are- Secured Business Loan Business Sarthi Debt Consolidation Loan Working Capital Loan Do not Swipe Cash. Get a Salary instead Most business owners make the mistake of swiping off money as per their requirements directly from the business cash box or account. This will ultimately contribute to a miscalculation in revenue consolidation and profit assessment. Keep a chunk of earnings set aside for your personal needs. Consider this as a “salary” of sorts you pay yourself! This way, the expenses stay in check while ensuring your business is transparent. Understand the Priorities for Business Structure As a business owner, you have to judge your business's needs. Sometimes, a business loan pumps more funds into the business, making operations faster and smoother. Again, sometimes, debts slow down business profits, and you need to repay them quickly. These decisions need to come from situations your business sees. You cannot strategize ahead; you can only observe and take action. You simply need to understand the priorities best suited to your business's structure. [B-02] Conclusion: Adopt such financial habits for heightened business growth and better business results. Just adopting these habits will not help. You need to focus on them and stay true to them.

08-11-2023

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What Is Working Capital Loan?

Working Capital is an indicator of the financial condition of an organization or a company. Working capital indicates an organization’s liquidity levels, operational efficiency, and short-term financial health. Often referred to as Net Working Capital (NWC), it is the difference between the current assets (like cash, accounts receivable, unpaid bills, and inventories) and current liabilities (like accounts payable and debts) of a company. Company operations like inventory and debt management, revenue collection, and supplier payments give an idea of a company’s working capital. What is a Working Capital Loan? A Working Capital Loan is a loan to support day-to-day operations, ranging from paying employees’ wages to covering accounts payable. Business houses do not often have regular sales or revenue throughout the year, and thus, the need for capital to keep the operations going may arise. Banks and other Non-Banking Financial Institutions offer working capital loans to help offset your working expenses during such a low sales/revenue period. Companies with seasonal business cycles, cyclical sales, or reduced business activity periods require such a loan. These loans may be secured or unsecured, and you may or may not be required to pledge collateral to avail of the loan, depending on the loan amount and the financial condition of your business. Uses of Working Capital loan A Working Capital Loan is a type of business loan used to meet your short-term liabilities or financial obligations. It is not meant to fund your business expansion or asset purchase plans. The loan could be utilized for: Payment of monthly overhead costs (such as electricity, rent, salaries, and other day-to-day expenses) Purchase of raw materials Purchase of inventory Finance blocked payments from debtors Paying suppliers in advance Maintaining a healthy cash level Who Needs a Working Capital Loan? A Working Capital Loan is mainly applicable to small and medium enterprises (SMEs) and usually has a 6-48 month loan tenure. It is suitable for business houses that do not often have regular sales or revenue throughout the year. Thus, the need for capital to keep the operations going may arise. A working capital loan is an excellent choice for companies with cyclical sales or seasonal business cycles or even during periods of reduced business activity to sustain operations throughout the year. Who Can Apply for a Working Capital Loan? You are eligible to apply for a Working Capital Loan if you are: An entrepreneur, private or public company, partnership firm, sole proprietor, MSME, self-employed professional or non-professional. Above 21 years and below 65 years of age. Types of Working Capital Loan All banks/ lenders offer almost similar types of Working Capital Loans: Overdraft Facility or Cash Credit Term Loan Bank Guarantee Packing Credit Letter of Credit Accounts Receivable Loan Post Shipment Finance Features of a Working Capital Loan Loan Amount: It depends on the business requirements and experience and is customized to meet the business’s financial needs. Loan Tenure: Ranges from 6-48 months Interest Rate: Varies from lender to lender. Collateral: Working Capital Loans can be either secured or unsecured. Repayment: The repayment schedule is designed to match the business’s cash flow. Processing Fee: Banks charge a processing fee against the working loan sanctioned. Hassle-free loans: Easy-to-meet eligibility criteria and approved in 24 hours Flexible Withdrawals and Pre-payments: Flexibility in withdrawal of required working capital loan as and when needed. No prepayment charges are applicable either. [B-02] Key Takeaways A thorough understanding of Working Capital and its features can help you apply for a Working Capital Loan to meet your business needs. In short, working capital loans help businesses manage sales fluctuations, maintain a cash reserve, help take bulk orders, and equip to leverage trade opportunities.

08-11-2023

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Understanding Home Construction Loan

In contrast to buying an already constructed home, you may want to build a home according to your own needs. However, to construct a home, you would require enough capital to meet the financial requirements of the different aspects of building a home such as buying a plot, paying the labor, and others. A home construction loan help you get the money you need to build your home. In this article, you can understand the entire process of a home construction loan. [B-01] What is a Home Construction Loan? A home construction loan is simply a short-term home loan that can help you financially provide for the entire construction process of your home. Usually, home construction loans are offered for a lesser tenure compared to other loans. With this loan, you can cover the costs of the land, building material required, contractor labor, permits needed for home construction, and many more. More often, home construction loans include a particular contingency reserve that can be used to cover unexpected costs that may come up during the construction process. How Do Home Construction Loans Work? If you are planning to build a home, you may already have decided on a particular plot of land or a neighborhood to build your home. The bank or lending institution considers factors such as the neighborhood of the plot and others while sanctioning the loan. Let us have a look at the home construction loan process. Most construction loans cover the costs of buying a piece of land as well as constructing a home on that piece of land. Depending on your financial needs, it is best to check these terms with the lender before going ahead with the loan process. By covering both the costs of the land and construction, lenders tend to have more involvement in home construction loans compared to standard home loans. Once you’ve secured the loan, the lender will pay the builder in regular intervals depending on the phase of the construction. The lender first checks the progress of the construction and then releases funds accordingly. Before the construction is completed, you will only have to make interest payments. After completion of the house, you should start repaying the borrowed loan capital amount in EMIs. Types of Home Loans There are 5 main types of home loans. 1. Construction-Only Loan This loan only provides funds that are needed to complete the construction of the house. The borrower is responsible to repay the entire loan during maturity or get a mortgage to secure permanent financing. 2. Construction-To-Permanent Loan These loans allow you to borrow money to pay for the cost of constructing your home. The overall fees would be reduced as you have only one set of costs to pay. 3. Renovation Loan You can take out a renovation loan if you have been planning to upgrade your existing home rather than building a new one. 4. Owner-Builder Construction Loan These loans are either construction-only loans or construction-to-permanent loans wherein you also act in the capacity of a home builder. 5. End Loan Here are some tips for house construction that can come in handy. Select the builder carefully Investigate the area in which you want to build your home Hire a lawyer Don’t overbuild Don’t select a builder based just on their bid Decide the neighborhood carefully Note down your requirements before approaching the builder [B-02] In a Nutshell A home construction loan can help you build the home of your dreams. You can pick any type of home construction loan depending on your needs. If you are looking to avail of home construction, Piramal Finance can help you with one while offering benefits such as quick loan sanctions.

08-11-2023

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What Is Business Loan Fees And Charges

Easy access to capital is the lifeline that nurtures businesses. A business loan can provide capital to meet various business-related requirements. Be it delay in payments by debtors, plans to grow your business, purchasing additional inventory, or dealing with the cash flow issues because of the lag between payables and receivables. But before you apply for a business loan from a financial institution, it is prudent to understand the various fees and charges associated with it. [B-01] Processing Fees The processing fee is the amount charged by the lender for processing the loan application of a borrower. It is a one-time charge and is deducted from the loan amount at the time of loan disbursal. It includes checking your CIBIL score, loan approval charges, and administrative charges. The processing fee amount varies from lender to lender. Interest Rate A business loan interest rate is the amount charged by the lender to the borrower as a percentage of the principal loan amount. An interest rate can be charged on both, monthly and annual basis. The interest rate is typically calculated on an annual basis and is called APR (Annual Percentage Rate). Late Payment Charges An Equated Monthly Installment is the fixed amount of money paid by the borrower on a specific date of each month during the tenure of a loan. It is advisable to ensure that you keep your account funded on or before the due date of EMI deduction. Any delay or non-payment of EMI on the due date negatively impacts your CIBIL score. The penalty levied for the delay in EMI repayment is called late payment charges and can be different for different lenders. Non-payment of EMI could be because of signature mismatch or insufficient funds in the account. Online Convenience Fee A business loan fee charged by the lender for providing online services to the borrower is called an online convenience fee. The online convenience fee is a nominal amount paid for online services such as obtaining a login ID and password for the loan account. Most financial institutions these days have apps that can be used to keep track of your business loan and these apps are available for free. Documentation Fee To get a business loan, a borrower has to submit the required documentation to the lender. The business loan fees charged by the lender for the services of the employee handling the paperwork is called documentation fee or document processing charges. This fee varies based on the lender and the type of business loan applied. Prepayment Fees A business loan infuses the required capital in your business which can be used for addressing the cashflow concerns and growing your existing business. Let’s suppose your business does well and starts generating a steady revenue stream. You might think of being debt-free by repaying the pending loan amount at one go instead of monthly EMIs till the completion of the loan tenure. A penalty or a fee charged by the lender for the early closure of the business loan is called a prepayment fee or foreclosure fee. Business Loan Process Listed below are some simple steps for getting a business loan Identify your loan requirements and assess the eligibility by visiting the lender’s website. Select the type of business loan as per your business needs. Choose the lender based on the interest rates offered, business loan charges, and the tenure of the loan. Evaluate your chances of getting the loan approval. Gather the required documents. Fill out the application form and apply for the loan. [B-02] Bottom Line As a business owner, you are constantly looking for ways to grow your business. A business loan is a financial tool that can help you with the funds required to expand your business. But before you apply for a business loan with a financial institution, you should be aware of the various business loan fees and charges Refer to the points above to understand the charges/fees taken at the time of loan processing by the financial institutions.

08-11-2023

Tips & Advice

How Credit Score Impact Your Home Loan Interest Rate?

A home is an expensive purchase altogether. Many times, people do not have the required finances to buy a home. As a result, they opt for a home loan to gain financial support to buy a home. When you are preparing to buy a home with a home loan, it is best to do your research and pick the best home loans with competitive interest rates. When it comes to getting the best interest rate, there is something that is more important than saving up enough for your down payment. It is wise to keep an eye on your credit score. It plays an important role in the interest rate of your home loan. In this article, we will dive deep into how your credit score can affect your home loan interest rate and how you can improve your score. [B-01] What Is A Credit Score? A credit score is a 3-digit number that records all your financial habits. It is a measure of your creditworthiness. This credit score ranges between 300 and 900. They are calculated by the credit bureaus in India after considering several factors such as repayment history, debt, credit inquiries, and others. It is usually recommended to have a credit score of or above 750. A higher credit score indicates that you are a financially responsible individual with high creditworthiness. So, if your credit score is below the recommended range, it is best that you improve your credit score before applying for any type of loan. Why Is Your Credit Score Important? Your credit score is crucial as it helps determine the interest rate at which credit is offered to you. It also determines the interest that will be charged on your home loan. Many insurers also consider your credit score to determine the premium to be charged on your insurance policies. So, it is important to have a good credit score to avoid paying high interest rates. You can leverage a good credit score into a great deal on your home loan. How Does Your Credit Score Impact Your Home Loan Interest Rate? From the perspective of the bank or the lending institution, they would be lending you money for a certain period of time. If you have a poor credit score, this would mean you have had a history of poor financial habits, including repayment of loans. In such a scenario, the lenders are at a higher risk. As a result, they charge a higher interest rate to ensure that they collect a reasonable amount of money over a shorter period of time. In contrast, if you have a good credit score, lenders would be willing to reduce the interest rate due to your good repayment habits, which thereby translates to a lesser risk. A small decrease in your interest rate can lead to a large sum throughout the home loan, considering the timelines for home loans, which are usually longer. How To Improve Your Credit Score? If you don’t have a good credit score, you can improve your score by following a few practices regularly. Here are 3 tips that can help you boost your credit score. 1. Be Timely With Your Credit Dues Whether your credit card bills or a loan, it is best to repay your dues on time. Late payments can negatively affect your credit score. So, always remember to make your payments on time. 2. Settle Your Late Bills Having unattended dues can hurt your credit score. So, make sure you have a tab of all your pending dues and settle them as soon as possible. 3. Check Your Credit Report In some cases, it could so happen that your credit report has errors. Check your credit reports to ensure that it is error-free. [B-02] Final Thoughts When it comes to the interest rate of a home loan, credit score is an important aspect. A good credit score can help you get a lower interest rate, making your repayments more affordable. Ensure you maintain a good credit score before applying for a home loan.

08-11-2023

Tips & Advice

When Should You Take A Business Loan?

A business is not only a medium of livelihood, but it is the result of a businessperson's blood, sweat, and savings. Many things are responsible for the success of a business; however, the most important one is funding. Funds are the basis of everything happening within the company/enterprise. But funds can also be a limiting factor for your business at times and at that point business loans would come to your rescue. A business loan is a one-shot solution to ensure your business faces no issues. Moreover, getting a business loan online at Piramal Finance is the easiest thing to do. Let us take a look at the reasons for which you should take a business loan: For a New BusinessEvery business must take its first step by completing many pre-opening procedures and setting up. Capital is the most important thing to fund all of these, and taking a business loan for this purpose can reduce the burden on the owners. For Business ExpansionIf a business is going well and the owners would like to expand it, a business loan would help a lot. It can be used to finance the production of new products, promotion and marketing, recruitment, etc. For Renovation PurposesIt is absolutely important to keep your office spaces updated at all times to attract more customers. Taking a business loan would be the best idea if you would like to renovate the place and add new and advanced equipment. To Grab New Business OpportunitiesIf there is a business opportunity in the market and you are willing to grab it, then you might need funds. Business loans are there to fund you everywhere and every time. To have the edge over Your CompetitorsToday, when competition is present in every field, staying ahead of your competitors is very important. Digitising your business, installing advanced technology machines, switching to better software, etc., can all be done with the help of a business loan. Key Features of Business Loans at Piramal Finance Here are the following features that will showcase why you should always choose PCHF for a business loan: Wide Range of Collaterals are AcceptedWhen you apply for business loans, you have the option of using collateral. PCHF understands the need for money in business and, therefore, accepts a wide range of collateral or property against a secured business loan. Hassle-Free and Quick ApprovalsUnlike in the past, getting a business loan online has become a relaxed job. PCHF recognises your valuable time and thus follows the rule of quick approval and disbursal without causing you any hassle. Higher Loan AmountsPiramal Finance offers high business loan amounts that can go up to INR 25 lakhs to help cater to the needs of all types of businesses. Personalised SolutionsWith products specially designed for customer benefit, PCHF has a team of dedicated relationship managers who assist loan aspirants at every stage. Low Interest RatesPCHF offers business loans at 12.5% interest for all salaried as well as self-employed personnel. How do you apply for a business loan at Piramal Finance? If you have to apply for a business loan online, there are some easy steps to follow: Visit the online portal of PCHF and read about business loans Once satisfied, click on “Quick Apply” Fill the form with all valid details and submit Wait for a representative to contact you and further assist you with the process [B-02] Conclusion Business loans are a boon for businesses with the required potential but only need a push to go a long way. Piramal Finance provides the best online business loans with a lot of benefits. Moreover, the online application process for a business loan is indeed easy. So, if you or anyone you know plans to apply for a business loan, PCHF is the place to be.

08-11-2023

Tips & Advice

Why Is Early Payment Crucial For Recovering Small Businesses?

Covid pandemic has spared none in the world! The strict curfew laws and lockdown regulations turned everyone’s lives around. However, one sector that was badly affected was the MSME sector. It was reported in a recent survey that more than three-fourths of the country’s small businesses had an adverse effect after the first lockdown was imposed. In addition, most of the small businessmen, majorly manufacturers, blamed the lack of finances for disrupting their supply. Funds and supply solely depend on each other to efficiently manage the supply chain system. However, the cruel pandemic has drained all the cash flows from the markets and troubled sellers and buyers. Small businesses would need working capital to recover from the losses, which can be availed through invoice discounts and supply chain financing. These are similar to small business loans but have lower repayment periods than the latter. Supply chain finance is a set of tech-based financing solutions in which a third-party financer clears the seller's invoices on behalf of the buyers. This helps the seller have enough working capital and also gives the buyers time to clear their payments. This financing solution has benefits and no losses for both parties and thus, it is an effective way to recover from a debt trap. There are enormous benefits of having an early payment made as of course, you have those extra bucks to spend on your business in a much better way. The importance of early payments can be better understood through the following points: Helps the brand grow: A company with insufficient funds struggles to keep its position intact in the market. However, with the early payments made, enough working capital can be availed by the small businesses that can further help them improve their management and look for better opportunities. Let us see how: The funds can be used towards market research to expand the business and improve the product for its potential audiences. The money can be invested in the company’s human resources department to appoint the best talent. Offering employees better perks and job security will ultimately improve the business. High-level marketing techniques can take the product to a different level and increase its sales if invested. It can improve the quality of products and services, enhancing the brand’s goodwill. Strengthens relationships: Like a chain reaction, all business entities are interdependent on payments and supplies. However, difficult times often create unprecedented situations wherein you might not be able to pay your suppliers, stakeholders, or lenders on time, ultimately leading to trust issues. With enough working capital, you can keep your relationships strong with your suppliers by paying them on time. This may come in handy in the future, where if you need a favour, your good impression will get you one! Help keep your employees loyal: Employees are the valuable assets of any small or big company, and what’s better than a loyal workforce? Sharing your profits with your workforce is the best thing you can do to make your employees loyal to your company. Paying them timely, introducing special bonus programs, and hosting award ceremonies and seminars will motivate them and make them choose you. You can do all of these when you have sufficient funds. Helps with collateral-free business loans: Often, loan providers ask for collateral to provide a secured business loan that smaller business people with fewer assets cannot afford. Supply chain finance offers unsecured business loans to companies at competitive rates. Therefore, any legal business entity can easily apply for a small business loan. [B-02] Conclusion The pandemic hit small businesses that are still struggling to recover, but this is easily possible with early payments. Working capital is the crucial element of any company that controls all its day-to-day activities. Supply chain finance offers credit facilities and keeps the supply chain management moving.

08-11-2023

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Difference Between Secured And Unsecured Loans?

The two most common types of loans people take out are personal and business loans. They are both intended for different purposes, have different borrowing limits, and have other associated terms and conditions, one of the chief ones being secured or unsecured. Let us examine their definitions and critical differences between secured and unsecured loans. What is a Secured Loan? As the name suggests, secured loans are provided by banks and non-banking financial companies (NBFC) instead of some collateral that the borrower needs to put up as security. This collateral can be a new item purchased, with ownership rights in the lender's name, until the amount is repaid, such as a car, house, or shop. In other cases, it could be an existing security owned by the lender. These securities can be shares, stocks, gold, property, etc. Several financial institutions have many such secured business loan products available in their portfolio, such as home equity lines of credit, loans against property, loans against securities, and gold loans. Secured business loans are the most common method of availing business loans. This is because, typically, larger sums need to be borrowed, which requires the lending institution to safeguard its interests by requiring the borrower to put up collateral. These also involved longer repayment terms and competitive interest rates. Be cautious; a secured loan entails that in case of defaulting in payment or reneging from the repayment contract, the lender will have the right to sell off the collateral to compensate for their losses. [B-02] What is an Unsecured Loan? Unlike secured loans, unsecured loans do not require collateral or security on the borrower's part. From a lender's perspective, these loans are riskier regarding repayment and the credit risk of defaulting. Unsecured business and other unsecured loans come with higher interest rates and shorter repayment tenures to offset this risk. The borrowing limits are also lower, as lenders wish to lend large amounts only after receiving security in return as assurance. However, it is different from lenders unquestioningly providing unsecured loans. Certain factors come into play during the borrowers' financial assessment, such as the credit score, risk profile, past track record, payment history, current income, existing debts, etc. The borrowing limit, interest rate, and repayment tenure are locked based on a combination of these factors. Some typical examples of commonly occurring unsecured loans are credit cards, personal loans, and student loans. In Summation To summarize what we have discussed above, the critical difference between an unsecured and a secured loan is the requirement of collateral for securing the loan. In the case of secured loans, some sort of tangible collateral needs to be temporarily owned by the lender. This is why most business loans are secured loans. Due to the assurance with the lender, collateral allows for higher borrowing limits, better rates, and longer repayment terms. In case of non-repayment, the lender has the right to liquidate the security or collateral and balance the originally lent amount. Business loans may also be taken as secured loans, but the amount might be low and the interest rate high. Overall, there are better options than this. On the other hand, personal loans are frequently unsecured and offered based on the borrower's credit rating and financial history. Due to the reasons above, secured loans are easier to obtain and offer more benefits to the borrower; however, this largely depends on your individual needs and requirements. It also depends on your ability and willingness to put up collateral in return for the loan. In the case of smaller amounts intended for personal use, unsecured loans might be more apt. Visit your preferred lender's website to compare the terms and rates before deciding.

08-11-2023