NBFCs and banks have pushed for the development of unsecured business loans in response to the massive demand for finance by the MSME sector. Entrepreneurs and MSME owners can benefit from an unsecured business loan because it provides flexible working capital that can be used for things like
- Upgrading their technology and machines
- Hiring seasonal workers
- Purchasing, renting, or repairing machines and other professional equipment
- Purchasing raw materials
- Stocking up on inventory
Unsecured business loans can be incredibly useful for owners like you in need of funds to launch or expand their businesses. But which unsecured business loan should you choose?
Types Of Unsecured Loans For Businesses
- Overdraft: Overdrafts are loans or credit limits assigned by a lender that can access in parts. A credit limit is set or sanctioned when a credit amount has been used or availed.
- Term loan: This type of unsecured loan must be repaid as EMIs within a stipulated timeframe and given for a specific duration.
- Merchant Cash Advance: In this case, credit card sales deposited in a merchant’s account are used as a basis for a cash advance. A business’s monthly volume or credit card swipes determine the loan amount.
- Business credit cards: It is also possible for entrepreneurs to take out business loans against their business credit cards. Lenders sanction credit lines to meet the working capital requirements of a business via a loan.
- Working capital loan: Creditworthiness and repayment capacity are considered for the approval of a working capital loan to cover day-to-day business expenses.
- Microloans: Micro Finance Institutions (MFIs) usually offer microloans to meet the instant cash needs of borrowers. Micro-lending loans can range between ₹5,000 and 2 Lakh, depending on the business requirements.
- Government schemes: Government-sponsored loan schemes allow small business owners to obtain business loans at comparatively lower interest rates. Some of these schemes are Stand-up India, Prime Minister Employment Generation Program SIDBI’s Loans in 59 minutes, Mudra Loan, Start-up Scheme, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), etc.
Features & Benefits of Unsecured Loans
- No Collateral Required: In an unsecured loan for business, no collateral is required to guarantee against the borrower’s debt.
- Large Loan Amounts: Unlike other unsecured loans, such as personal loans, unsecured business loans offer a larger loan amount.
- Flexible Repayment Plans and Schemes: Lenders offer a variety of repayment plans and schemes which can help you narrow down on the one that best serves you and your needs.
- Quick Loan Approval and Disbursal: Because the loans are unsecured, there is no need to assess collateral, so the process is quicker.
- Attractive interest rates and No hidden charges: An unsecured business loan comes with an attractive interest rate, and all fees are listed online. The interest rates on unsecured loans are higher because there is no security. Still, a good credit score and strong business history can offset these.
- Flexible Tenures and Modes of Payment: There are a variety of tenures available from 12 months to 60 months, depending on the vendor.
Documents Required to Apply for Unsecured Business Loans
It is important to note that unsecured business loans differ from lender to lender in document requirements. There are, however, a few common requirements:
- Identity proof and address proof of the applicant (Aadhar card/ Passport/ Driving License)
- Business registration proof
- Permanent Account Number ( PAN) Card
- Bank statements of the past six months/ salary slips of the past three months
Once you have these documents in order, you can look up how to get a business loan online and follow the steps that show up.
Unsecured Business Loan Eligibility Requirements
- The applicant needs to be an Indian citizen
- The applicant should be aged between 21-65 years
- The applicant should be self-employed
- The applicant needs to have a business vintage of at least three years.
- The applicant should have a good CIBIL score.
Your business’s long-term success depends on investing in its growth, expanding into new markets, and developing new products. In addition to allowing you to take risks, an unsecured business loan allows you to capitalize on any growth opportunities. Before applying for a business loan, the costs should be weighed against all benefits and the cons need to be taken note of to ensure that the decision still aligns with your business plans. You must also review everything you need for your business. To sharpen your negotiating skills to get the best rate possible.
Summary: Starting or expanding your business requires investment. And what better way to gather these funds than through an unsecured business loan? NBFCs give you an unsecured business loan based on your documents’ validity and credit score. You can then use these funds to grow your business.