Top Reasons – Why Unsecured Business Loans Are Popular in India

A lack of adequate working capital can hinder the daily operations of your business, threatening both short-term and long-term growth. Seeking help from a traditional lender, like a bank or financial institution, comes at a cost. These institutions seek guarantees for their money and demand a valuable asset to be put up as collateral for the money they lend. If your business is already running a risk of going into loss, putting a valuable asset hostage is not going to help your cause, and that’s where an unsecured business loan comes into the picture.

When comparing secured vs. unsecured business loans, unsecured loans stand out as a more flexible and less risky option for businesses.

What is an Unsecured Loan?

Unsecured business loans are short-term small-ticket loans that help you take care of routine expenditures, such as asset maintenance, vendor payments, and raw material purchases. The best thing about these small business loans is that these loans are offered without any collateral. Apart from using these loans for working capital management, you can also utilize the loan funds for business expansion, however, the small ticket size means these loans are best used for immediate expenses that help your business return profits. But when considering the choice between secured vs. unsecured business loans, unsecured loans offer the advantage of quick access to funds for various operational needs, without the need for pledging valuable assets as collateral.

Here are the top reasons why small business owners in India are opting for unsecured business loans from NBFCs like Lendingkart over secured business loans from banks.

10 reasons why unsecured loans are preferable for small businesses

Small businesses often find unsecured loans to be a favourable financing option for several compelling reasons.

1. Helps overcome temporary business disruptions

A small business owner faces many challenges in today’s rapidly changing marketplace. Unsecured working capital loans give confidence to a business owner facing hard times due to temporary disruptions in the market, take for example the two recent cases of demonetization and GST implementation. By the time these policy decisions were streamlined, they had already caused a lot of financial turmoil for small business owners. Unsecured small business loans played an important role in stabilizing the market by giving business owners access to funds for working capital.

2. Faster loan approval and quick disbursal of funds

A signature feature of unsecured business loans, offered by NBFCs like Lendingkart Finance, is that they are exclusively designed for the needs of small and medium-sized businesses. Often, a small business owner needs quick access to funds to benefit from a new opportunity or to tackle immediate financial requirements. A traditional bank loan can take up to 10 days to get approved, hence defeating the purpose. In such cases, unsecured business loans come to the rescue with their faster approval times and quick disbursal of funds. Lendingkart offers quick business loans with disbursal time as low as 72 hours.

3. Flexible repayment options

Flexible repayment options is another top reason to choose unsecured business loans. A small business relies on invoice clearances to maintain its cash flow and profits. If a business gets most of its invoice payments after the first or second week of a month, it may struggle to keep up with the monthly payment schedule of a secured business loan which has a due date early in the month. Unsecured loans from NBFCs like Lendingkart come with flexible EMI options, letting business owners choose an EMI schedule that is in sync with their business earnings.

4. Business-friendly terms and conditions

Unsecured business loans come with business-friendly terms and provisions, such as low processing fees and pre-payment charges, auto-renewal of loan amount upon repayment, and no hidden costs. Hence, making these loans attractive for small business owners looking for quick and convenient finance.

5. No Collateral Required

One of the primary advantages of unsecured business loans for new businesses is that they do not require any collateral. This allows small business owners to secure funds without risking valuable assets. This is particularly beneficial for new businesses or startups that may not have significant property to pledge. Without the burden of collateral requirements, entrepreneurs can focus fully on business growth rather than stressing over potential asset loss. 

6. Competitive Interest Rates

Many non-banking financial companies (NBFCs) including Lendingkart offer competitive interest rate on unsecured loans. It makes these loans an affordable choice for small businesses. Although interest rates for unsecured loans can be higher than secured loans, the benefits of flexible terms, lower fees, and quick access to funds often balance out the cost. This affordability enables businesses to meet financial needs without breaking the bank. 

7. Ideal for Short-Term Financing

Unsecured business loans or unsecured personal loans are tailored to meet short-term financial needs. For a business, it can be handling seasonal demand, purchasing additional inventory, or covering unexpected expenses. With shorter loan terms available, small businesses can address immediate needs without long-term commitments. This flexibility provides businesses with an agile solution for quick funding without locking them into debt for extended periods. 

8. Simplified Application Process

The application process for unsecured finance for small businesses is simpler and faster. This makes it ideal for busy business owners. Unlike traditional loans that require extensive documentation and lengthy checks, unsecured loans from NBFCs like Lendingkart need only essential business and financial details. This streamlined process saves time and ensures a smoother experience. This is especially useful when businesses need quick funding to meet urgent needs. 

9. Builds Credit Score

Unsecured loans offer small businesses a valuable opportunity to build their credit score by making timely payments. An improved credit rating enhances a business’s credibility. It makes it easier to secure future funding at better rates. Establishing a solid credit score is essential for small businesses aiming to expand, as it opens doors to additional funding options when the need arises. 

10. Availability of Top-Up Options

Unsecured loans often include the flexibility to top-up the loan amount. It allows businesses to access additional funds if required. This option is especially useful for businesses facing new opportunities of unexpected expenses. Rather than applying for a new loan, business owners can conveniently increase their funding, maintaining cash flow and ensuring continued financial stability as the business evolves. 

Conclusion

 Unsecured business loans offer small businesses in India a flexible and accessible way to manage financial needs without stringent requirements. With benefits like no collateral, fast processing, flexible terms, and an easy application process, these loans offer an accessible way for businesses to secure funding quickly. This approach empowers small businesses to overcome market challenges and seize new growth opportunities. By choosing an unsecured loan, business owners can focus on scaling their operations with confidence. At Lendingkart, we are committed to supporting small businesses by providing secured and unsecured loans to help your business grow and succeed. 

FAQs:

1. What is an unsecured business loan, and how does it differ from a secured loan?

An unsecured business loan doesn’t require collateral, while a secured loan demands assets as a guarantee. In the event of default, the lender can’t seize your property, making unsecured loans riskier for lenders.

2. Do unsecured business loans have higher interest rates compared to secured loans?

Unsecured business loans often have higher interest rates than secured ones because lenders face increased risk. Without collateral, they have no asset to claim if the borrower defaults, making it necessary to offset this risk with higher interest charges.

3. Is it easier to qualify for an unsecured business loan compared to a secured one?

Unsecured business loans are usually easier to qualify for as they don’t require assets as collateral. However, lenders may compensate for this by setting stricter criteria for creditworthiness and income stability to ensure repayment.

4. How does my credit score impact my eligibility for secured and unsecured business loans?

Your credit score plays a pivotal role in determining your eligibility for both secured and unsecured business loans. A strong credit score substantially improves your approval prospects by showcasing your reliability and ability to manage debt responsibly.

5. How can entrepreneurs in India use unsecured business loans to support their working capital needs?

Indian entrepreneurs can utilise unsecured business loans to fulfil working capital needs such as inventory, payroll, and daily expenses without the need for collateral. This offers them financial flexibility and a valuable resource for business growth.

At Lendingkart Finance, we are constantly working towards providing small and medium business owners quick business loans to help them focus on growth and become profitable as soon as possible. To know more about Lendingkart business loans, visit our homepage or download the Lendingkart Instant Business Loans App from Google Play Store now.