Business loans are offered by the banks and financial institutions extensively to encourage entrepreneurship on a wider scale. But, these loans are offered based on one's business, financial statements, stability of the business, profits generated and future growth.

There are two types of business loans: Secured Business loans and Unsecured Business loans. Here, we shall discuss about the concept of unsecured business loans in detail.

The unsecured business loan is defined as the funding of the working capital in various currencies for partnership firms, limited companies, proprietorships and private limited companies. These loans are provided to the borrowers to initiate their business or grow the business without a collateral of any asset or property.

Unsecured business loans are generally opted by the small business houses or the Startups. The loan is widely utilized for enhancing the asset base, capital investment, purchasing the raw materials and meeting the operational costs. Also, if a borrower doesn't have access to sufficient collaterals like assets or properties, he/she generally opts for the unsecured business loans.

Some eligibility criteria for acquiring the unsecured business loans are as follows:

1) A solid business plan

2) Good credit score for the business

3) A clean personal credit history of the borrower

4) Growth potential of the business

5) Source of revenue generation and profit maximization

The unsecured business loans are offered for both long term and short term tenure as well. However, the rate of interest is a bit high. This is because, the borrower doesn't present any collateral at all. Also, the interest rate can be fixed or may vary. But, borrowers generally prefer to pay fixed rates to avoid unnecessary increase in interest rates during the loan tenure. These loans are also dubbed as the Signature loans. However, these loans don't really encourage prepayment. Rather, prepayment invites penalty charges and may be very expensive as well.

These loans are the most viable ones for the business houses, who are the Startups and are yet to mark their presence in the market. This loan is absolutely the best for the individuals, who don't still have a good asset base and are struggling hard to possess a good credit history. he personal assets of the borrower remains protected since no collateral is required in these loans.

The interest rates for such loans are a bit higher and are thus considered to be a bit risky. The borrower needs to pay a lot more money and also for a longer period of time. So, it becomes quite expensive.

It's advised to have an apt estimation of the working capital before applying for the business loans. Also, one must compare the various criteria and the interest rates as well from the various banks and financial institutions before actually availing the one for the business.