Financial institutions offer unsecured business loans to borrowers without asking for any security or collateral from the bank or NBFC. They provide the loan based on the following factors:
- Credit history,
- Credit score,
- Financial records, the income of the borrower, etc.
Business owners can use the unsecured business loan for opening their startup to establish a new business or firm and help the company manage the finances during the initial phase.
Usually, the l borrowers are small business owners as these types of loans help them meet their necessary working capital needs and help them run the operations of their business swiftly.
But at the same time, the risk factor is also there for the lenders such as banks and NBFC as there is no security or collateral in such loans.
An unsecured loan does not require any form of security. As mentioned at the beginning of this article, instead of using a borrower’s assets as collateral, lenders approve unsecured loans based on their credit history. Loans such as personal loans, student loans, and credit cards are examples of unsecured loans.
Our financial experts can help you avail of an unsecured loan.
WHAT ARE THE TYPES OF UNSECURED BUSINESS LOANS?
The borrowers are obliged to return any loan they take for a certain period of time secured or unsecured in EMIs over a set period.
Working Capital Loan
Business owners can use a working capital loan to meet their day-to-day business expenses. This kind of loan is approved on the basis of the applicant’s credit and repayment capabilities.
It is a loan or credit limit provided by the lender that the business owners can use in instalments determined by the financial institution.
The interest rate is applied to the amount that has been borrowed from the given or sanctioned credit limit.
Loans Under Government Schemes
The government has commenced different initiatives for small business owners to avail of a loan at a lower interest rate.
The schemes are:
- Start-up India,
- Prime Minister Employment Generation Program,
- Mudra Loan,
- SIDBI’s loans in 59 minutes, CGTMSE, i.e. Credit Guarantee Fund Trust for Micro and Small Enterprises.
Need help regarding the schemes? Don’t worry, we have a team of financial experts who can help you understand these schemes and get you a loan to start your business.
The credit limit on a rotating loan specifies the maximum amount of the loan a borrower can withdraw at any time.
As a borrower, you have the freedom to withdraw as much money as you require within the stipulated time frame and limit. This loan form does not restrict you by any stringent instalments.
It is a straightforward loan that the borrower uses to pay off previous or existing credit card debt or other unsecured debt.
Merchant Cash Advance
A merchant cash advance is a cash advance which is based on credit card sales deposited in the account of the merchant. The loan amount is specified by the business’s credit card swipes or a monthly specified amount.
Micro loans are loans provided to a borrower to meet their short-term cash requirement. Microfinance institutions grant these loans from a range of INR 5000 to INR 2 lakhs.
Business Credit Cards
Borrowers can use their business credit cards to avail of the business loans. The loan amount is basically a credit line(s) piven by the lender to meet a business’s working capital needs.
BENEFITS OF UNSECURED BUSINESS LOANS
One of the most important benefits of an unsecured loan is that it does not need any security. This makes it perfectly suitable for small and medium-sized companies that do not have enough assets in their portfolio as they are just getting started or are trying to stay afloat.
The Loan Application Process
It is a direct loan, and anyone with a basic understanding of technology can certainly fill it. Borrowers can also do it at any local branch or online via the lender’s website.
Secured loans are generally fixed, and a majority of them can only be used for limited purposes, such as car loans to buy a new car, home loans, etc.
Whereas unsecured business loans give the borrower the flexibility to use the funds for various other goals, and he or she is not obligated to use the unsecured loan for any certain purpose.
In case you are looking for unsecured loan advice you may reach out to us, here.