Impact of unsecured business loan on Indian economy
Capital is the lifeline of any business be it a small scale enterprise or a large organisation. Businesses largely survive on a dependable source of financing to run their operations whether it be working capital requirement or for investing in a long term project. Any capital comes with a cost that includes a risk value as well as time value. Mostly, loans which have short repayment tenures are favoured by companies since they come attached with a lowered cost of time value. But under cyclical conditions they start costing more than long term loans due to inverted rate structures. This could be due to inflationary pressures or in special circumstances because of paucity of funding available in the market. Since short term loans tend to be unsecured they happen to cost effectively more due to the risk value attached as they are not secured by any collateral. Banks and financial institutions are required to provision for bad debts and business loan disbursements in any circumstance sinc...