What Are Unsecured Business Loans? How Small Entrepreneurs Can Take Advantage?

The business sector in India is rapidly booming. The massive internet penetrations, technological advancement, business-friendly government policies, and rising awareness about entrepreneurship are some of the reasons behind this boom. With the increasing number of businesses popping up every day, financial institutions offering funds are also increasing. When the founders seeking business loans do not have any collateral to provide as security for their loans, they prefer unsecured business loans. Getting an unsecured business loan for startup has now become easier than ever.

The banks or NBFCs in India offer unsecured business loans to business owners without asking for collateral security. The banks assess their credit score, financial records, crest history, and income to determine their creditworthiness. Unsecured loans help support the working capital and help your business sustain its operations without affecting them.

Most small business owners and startup founders prefer unsecured loans to satisfy their requirements for working capital. But the financial institutions offering unsecured loans have to bear the risk of not having security or collateral for these loans. If you are a startup founder looking to raise funds for your business, you must understand what unsecured loans are and how they can benefit small business owners and entrepreneurs.

Small business owners and entrepreneurs can apply for unsecured loans from banks and NBFCs. But to be eligible to get these loans, the borrower must satisfy the eligibility criteria. If you plan to apply for an unsecured loan, you must know the eligibility criteria.:

  • Age criteria: The applicant must be at least 18 years of age at the time of
  • The credit score of the applicant must be 750 or
  • The company must be in existence for at least one profitable year at the same location
  • The applicant must have a steady source of income with supported proof like payslips
  • Bank account statement of the applicant for the past six months

Features of Unsecured Business Loans

Banks and NBFCs offer various types of business loan packages. Most of these packages are similar in offering but can differ in many aspects like repayment schedule, interest rate, etc. The applicant must know unsecured loans’ standard features or characteristics before applying.

Following are some of the standard features of unsecured loans you should know:

  • Unsecured loans do not require any security or
  • The lender grants the loan application of the borrower based on their To determine the applicant’s creditworthiness, the lender can consider their credit history, financial documents, and other variables.
  • Many banks which offer an unsecured business loan for startups require them to be profitable for at least 1 to 2
  • The term for unsecured loans is usually flexible and can range from one to five years.
  • Unsecured loans are available for SMEs, MSMEs, manufacturers, traders, business owners, startup founders, retailers, public companies, private companies, corporations, and partnership

How Can Unsecured Business Loans Benefit Small Business Owners And Startup Founders?

Small business owners and startup founders need a steady flow of working capital to ensure company operations run smoothly. Such small businesses cannot afford to suffer their core operations, especially when competing against bigger businesses in a cutthroat competition. Therefore, small business owners and startup founders rely on an unsecured business loan for startups to provide necessary working capital and keep their operations on track. Following are some benefits of unsecured loans for startup founders and business owners.

1. No Need for Collateral

When running a small business or an early-age startup, having a steady flow of income can be challenging, especially when you have to ensure all your business operations have enough resources to run smoothly. On top of that, many small business owners need financial assets or properties they can provide as collateral to secure a business loan. Thankfully unsecured loans do not require any financial asset or property owner of the applicant to put up as security. The applicant with no collateral but satisfactory creditworthiness can be eligible for unsecured loans.

2. Simple Application Process

The application process to apply for an unsecured loan is very straightforward. Anyone with a basic understanding of the internet and technology can apply for such loans from their local bank or the lender’s website.

3. Flexibility of Repayment

The unsecured loan also offers the flexibility of repayment. It helps business owners secure business loans when needed and pay them back when they have substantial cash flow.

4. Lesser Documentation

Unsecured loan applications require minimum documentation. Only documents are needed for identification and proving the creditworthiness of the borrower.

Securing a business loan is challenging, especially when you have no assets to put up as security. In such times, unsecured loans come no less than a blessing for small business owners and startup founders. Unsecured loans can help businesses sustain their core operation and navigate their business toward profitability and success.

Many startup founders are skeptical about securing business loans. Hence, they prefer getting investments from investors. Such investments require the founders to dilute their original equity to offer to the investor. Revenue-based financing can help startup founders sustain their initial equity without cutting it. Instead, they can offer a monthly payment to the investor from the company’s gross revenue. This can be a great way of raising funds for founders who wish to sustain their equity.

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