Unsecured Business Loans – The Safest Choice for Growth

When you are planning to raise short-term finance, an unsecured loan can be the best way to do so. The safety offered by an unsecured small business loan is one of its primary selling points. You are not required to put up equipment or property as collateral when applying for an unsecured loan. Notwithstanding the fact that most small businesses lack adequate collateral assets, the elimination of this requirement makes these small business loans more accessible for MSMEs.

Moreover, the entry of NBFCs has further democratized the Indian small business loan market. New age lenders use the power of the internet, cloud computing, big data and AI to process loan applications faster and with higher disbursement ratios than their banking counterparts. For example, applying for a business loan online with Lendingkart can get you the money in less than 72 hours while a bank takes at least 7 days to process the same application.

Collateral-free loans for business – eligibility

For secured or unsecured business funding, loan eligibility is subject to the criteria put forth by the lenders which is usually aligned with their risk appetite. Eligibility also depends upon the type of loans you’re applying for, it could be very different in case of secured and unsecured loan in India.

Basic entrepreneurial loan eligibility criteria for collateral-free loans include the following:

1. Good Credit History : It is the basic most requirement if you’re looking for debt funding. Every lender would assess your credit history to come to a conclusion if you’d be eligible for a loan or not. Good credit history may also help you secure favorable loan terms for future loans.
2. Financial statements and records : If you’re applying for a business loan of any kind, the lender would require your financial statements and records to assess the financial health and cash flow of the company. It helps the lenders determine the viability of repayment using the financial strength of the company
3. Proof of business and ownership : Lenders may require you to submit proof  of business and ownership for them to make a fair assessment of the business to be in a better position to approve and reject the loan application. 

Unsecured business loan interest rate

For any loan, or an investment, the returns are directly proportional to the risk associated with it. This may beg a question, what may be a collateral-free loan rate of interest? Answer is – It depends on multiple factors!

See as highlighted earlier, riskier loan makes the interest rates go higher, and considering the fact that the loans in question are of unsecured category, i.e. have no collateral backing the repayment guarantee to the lender, loan interest rate in such cases are bound to attract higher interest rate than a secured loan with similar applicant profile, and other loan specific variables. 

Here is how a small entrepreneurial loans without collateral helps in your company’s growth.

Ensures operational successes

Every business relies on operational stability to earn profits. A small business loan allows you to purchase raw materials, finished goods, or other items that you need to keep in ready stock. Furthermore, you can also utilise the loan funds to pay wages and salaries, and clear immediate bills and expenses.

Considering the fact that the entrepreneur of a small business may not have access to funds at all times, or may sometimes be short of funds to ensure sufficient working capital. In such cases, financing by giving up equity may make little to no sense at all. To ensure availability of sufficient funds to ensure smooth operation, the entrepreneur can opt for a small entrepreneurial loan. These are short term loan funding with usually flexible tenure and loan repayment structure.

A small business loan also helps you in working capital management when your bills receivables get delayed or there are unexpected operational costs to be taken care of.

Safeguards your bottom-line

By offering quick and easy liquidity, small business loans give businesses a way out from the vicious debt traps practiced by unorganised moneylenders. Now you can safeguard your bottom-line more easily with MSME loan funds without having to worry about long-drawn loan approval processes from banks.

Also Read: Reasons why Unsecured Business Loans have Become Popular in India

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An unsecured business loan is not given against collateral, therefore its value is not tied to the value of a fixed asset. You can get an unsecured loan starting from Rs. 1 lakh and go all the way up to Rs. 1 Crore to fit your business requirements.

Lenders can be flexible with their loan approval limits. As highlighted earlier, since there is no collateral, hence there is no upper cap on the loan amount that can be secured by the borrowers. It solely depends upon the business requirements, credit history and loan repayment capacity of the borrower. Based on these criteria, does a lender decide on a suitable amount that can be approved and aligns with the lender’s risk appetite. I.e. Unsecured business lending largely depends on the borrower’s creditworthiness and the lender’s risk appetite.

Flexible Repayment

Small business loans from FinTech lenders come with another plus i.e. the option to pay EMIs on a fortnightly or monthly basis as per the loan agreements. So, not only can you get the loan funds quickly but you can also repay them faster to get another loan approved. For example, Lendingkart approves and disburses the paid-up loan amount without further processing charges or additional document requirements.

For collateral-free loan for new business, lenders often offer flexible repayment options. These options can be leveraged by the borrower to ensure efficient utilization of the borrowed funds. Having flexible repayment options can give the lenders headspace to focus on their business operations and repay the borrowing company effortlessly.

Multi-purpose usage

An unsecured business loan is a short-term business loan, thus, lenders do not impose any restrictions on its usage. You can use the loan funds for any number of business activities which makes them excellent for boosting your working capital, business investment and marketing activities.

Now, after reading the benefits, the question you must be asking is that;

What if you default on an unsecured business loan?

Defaulting on a repayment obligation for debt funding can have very serious repercussions. It can have consequences from something as little as penalty charges, to something as serious as a lawsuit depending upon the magnitude of the default.

Well, defaulting on the loan can ruin your credit score for starters. And, you might not get loan future loan approvals due to the bad credit history. Which in turn will make the loan repayment even more difficult. The lender may also file a lawsuit if all negotiations for repayment fail.

However, in most cases the lenders will consider a revised repayment plan if you let them know of your financial difficulties in advance.

Wondering where to apply for a business loan online? Click here to visit us at Lendingkart and start your first online business loan application.

Summary:

The unsecured business loans have proved to be helpful and really useful for micro, small and medium enterprises. Unsecured loans are advantageous to such businesses as these do not require any collateral, which makes it more suitable to small businesses which may not have assets to make for the collateral. 

The qualifications of these loans often vary but having a good credit history and the business being financially healthy is almost a  non-negotiable which the lenders take into consideration. Typically, unsecured loan interest rates are higher because of higher risks and may vary as per the credit profile and health of the business. 

Unsecured business loans help the sustainability of the businesses, as it helps the entrepreneurs secure debt funding comparatively easily. It helps the businesses with quick liquidity for procurement of inventory, salaries, and other overhead expenses. 

In addition to above, one should be aware whether taking an unsecured loan is good or bad for business. Any default might attract penalties, falling credit score, and even legal actions. However, if borrowers communicate their financial difficulties early enough, lenders might agree to negotiate repayment plans.

Borrowers can also make an application for an unsecured business loan from the comfort of their home. In case of any queries, the entrepreneur can reach out to the lenders by contacting the helpline number provided by the lenders for any questions or concerns regarding loan offerings. 

Frequently Asked Questions

Is an unsecured business loan a safe option for growing a business?

Unsecured business loans in the Indian market offer advantages like quick access to funds, no collateral requirement, and flexibility in use. However, they come with disadvantages such as higher interest rates and limited loan amounts. Whether it’s a safe option for growing your business depends on your risk tolerance and financial situation. Evaluate the benefits and drawbacks carefully before opting for an unsecured business loan.

How can I determine if my business is eligible for an unsecured business loan?

To determine eligibility for an unsecured business loan in India, consider the advantages and disadvantages. Advantages include no collateral requirements, quicker approval, and flexibility in fund usage. However, eligibility depends on factors like credit score, business performance, and repayment capacity. Benefits include easier access to funds, but the absence of collateral may lead to higher interest rates and lower loan amounts. Carefully assess your financial health and research lenders to find the best fit.

How can I improve my chances of getting approved for an unsecured business loan?

To enhance your approval odds for an unsecured business loan in the competitive Indian market, consider the advantages and disadvantages. Highlight your strong credit history, steady revenue, and business plan. Emphasize the benefits of unsecured loans, such as no collateral requirements and faster approval, while acknowledging the higher interest rates and stricter eligibility criteria as disadvantages. Present a compelling application that showcases your ability to manage the loan responsibly.