Why are Unsecured business loans better for small businesses?

Obtaining funds for expanding the business and growing sales is a challenge faced by many small and medium-sized businesses in India. In particular, if you are a small business owner, have no assets, and cannot borrow from a traditional lending institution, such as a bank, the odds of being approved for a business loan are nearly zero.

This is where the era of unsecured small business loans comes in. It is considered one of the safest business loans in India, and it has been a saviour for numerous small businesses.

There are several reasons why unsecured business loans for startups are gaining popularity, including the lesser requirement for document verification, flexible payment options, and no collateral requirements.

Continue reading for more information on why unsecured business loans are the best financing option for small businesses.

First, let us define an unsecured business loan before we go into the benefits of unsecured business loans.

Also Read: Key Differences between Secured and Unsecured Business Loans

About Unsecured Business Loan

Business loans without collateral are unsecured loans. To evaluate a company’s loan application, the financial institutions will evaluate it based on its creditworthiness and previous record of success rather than the company having to provide collateral to support its application.

Access to an unsecured business loan can help the business finance its operations.

Also Read: 9 Different Types Of Business Loans In India

Types of Unsecured Business Loans

Unsecured business loans for new businesses fall into the following categories:

Term Loan

When you take on a loan for a specified period, secured or unsecured, you must repay it in EMIs over the loan term.

Working Capital Loan

Working capital loans for small businesses are a useful option to cover the daily costs of your operations, and approval is typically based on the applicant’s credit rating and repayment capability.

Overdraft

An Overdraft refers to a loan or credit limit granted by a lender that the borrower can take out on behalf of the lender in installments determined by the lender.

However, if you seek unsecured business loans for startups, you can apply for an unsecured business loan in Mumbai.

Also Read: Understanding Business loan vs Overdraft: Which to choose?

Why are unsecured business loans better for small businesses?

Several benefits of unsecured business loans, especially for smaller companies. Here is why.

No dependency on collateral

An unsecured business loan does not require collateral to be put up as security. It provides a sense of safety for the business, in addition to providing a sense of safety for the owner of the business.

These types of loans do not require collateral assets to be secured, so the asset won’t be lost as there is no need to keep it as a security.

Despite this, the interest rate is higher than secured loans because unsecured business loans are not secured by collateral.

However, no collateral process in place enables small businesses to seek loans and thrive in the future.

Further, it simplifies the application process by streamlining the time it takes for individuals without assets to obtain financing for a small business.

Multiple repayment options

Small business owners tend to use unsecured business loans because of the multiple options they have regarding repayment, which makes them popular with many small business owners.

The loan repayments can be made daily, weekly, bi-weekly, or monthly.

By doing so, the business owner could plan their payment timing following expected cash flow, which would make unsecured business loans more secure, even as far as repayment terms are concerned.

Helps you in growing your small business

You need money to expand, develop new products, and advance your business. An unsecured business loan will enable you to seize every opportunity and make the most of all the growth opportunities available.

Unrestricted use of funds

There are many reasons small business owners so highly seek out unsecured funds. One of those reasons is their ability to be used in any way that one desires. In other words, money is available to you wherever you want.

In contrast, with a traditional bank loan, you could not use the funds in the way that suited your preferences. Generally, banks require that you provide a detailed business expansion proposal for them to grant you a loan.

Unsecured business loans allow you to use the money however you want. Unlike traditional lenders, many digital lenders don’t even ask you what you intend to do with the funds when you apply for them.

As a result, the decision is yours to use the money for whatever reasons you want, whether it is hiring additional staff, expanding your business premises, doing research and development, or for whatever other reason may come to mind.

Minimal documentation required

If you are applying for an unsecured business loan, you will only need a few documents to complete the process. To apply for a mortgage, a borrower only needs a scanned copy of their identification proof, address proof, SPDC, and the cancelled check as proof of their identity. Depending on the lender, you are also likely to be asked to submit certification of your business’ existence, bank account statements, or other financial documents to verify the vintage of your business.

Also Read: Top 8 Government Loan Schemes for Small Businesses in India

Eligibility Criteria for an Unsecured Business Loan

Although the eligibility criteria for getting an unsecured business loan may differ from provider to provider, the fundamentals of securing such a loan remain the same. As a prerequisite for the application of an unsecured business loan, the following criteria must be met:

• The business must be based in India.
• There should be a minimum age requirement of 22-55 years old for the borrower to qualify.
• The business vintage must be at least three years old.
• As a business owner, you must file your company’s income tax return within the last year.

Conclusion

A business owner must consider several factors before applying for an unsecured loan. These factors include the interest rate, prepayment charges, and offer documents that need to be submitted for the loan if one is interested in the loan.

Take the time to examine all the benefits and drawbacks of taking out a business loan, and make sure that what the business loan provider offers you is in line with what you hope to accomplish in your business.

If you are confident about your business idea and progress, you must connect with reputed loan agents in mumbai. They can help you through the process of procuring unsecured business loans for your small business.