Getting a business loan for a small-to-medium level business in India has always been so difficult that these entrepreneurs were left with only one choice, i.e. either shut the business down or sell it to some other well-established businessman. The traditional sources of money like banks and other financial institutes, typically with no collateral, often denied business loans to these businessmen.
In fact, many such business firms had failed due to lack of funds needed to expand their market presence at the right time. Another common scenario included informal lenders who charged significantly high rates of interest from these businessmen. Even today, there are many business owners that are in the growth phase and don’t possess sufficient collateral to be eligible for secure business loans.
There comes the role of unsecured business loans that offer collateral-free business capital.
Unsecured Business Loans
An Unsecured Business Loan is an SME (Small and Medium-sized Enterprises) (opens in a new tab/window) loan, which financial institutions provide to businesses or individuals with no requirement of any collateral or asset for the loan.
In simple words, an Unsecured Business Loan is a type of loan with zero or no collateral. While some financial organizations do have certain criteria to meet, many like to offer loans up to 5 Lakhs without any collateral.
Are Unsecured Business Loans A Good Option for SMEs?
With the evolution of Tech Era, entrepreneurs have multiple options to get the much-needed funds and expand their business whenever required. FinTech startups provide collateral-free loans to businessmen who look to expand their online and offline presence but don’t have any assets to submit and avail traditional business loans from a bank or any other financial institution in India.
Today, various start-ups across India are leveraging the unsecured business loans and expanding themselves exponentially. Let’s look at some top reasons why unsecured business loans have become the first priority of SMEs.
As mentioned above, Unsecured Business Loans for SMEs require no collateral, which means that a businessman who seeks a business capital does not need to submit any security deposit or stake in his asset as collateral.
Overall, obtaining an unsecured business loan for SMEs that do not have collateral is pretty easy these days as long as you have been running a business at least 2 years or more.
The best thing about an unsecured loan is that the time needed to avail the benefits is fairly short. In other words, since the eligibility criterion is quite relaxed and no collateral is required to secure the loan amount, an entrepreneur can get the loan disbursal in almost no time.
Besides, SMEs opt for unsecured business loans when they get stuck in a situation that requires money to handle, which makes it another big advantage for them. The business does not have to face any stoppage due to lack of money and other related operations.
While money lenders like banks and other financial institutions have strict requirements and terms & conditions to meet to avail a loan, including the credit history of the business owner, the case is quite opposite with an unsecured business loan for an SME. In fact, credit history is not the only a prerequisite for securing an unsecured business loan, which fairly increases the chances of getting the loan reimbursed.
In case an entrepreneur does not have a good credit history and he wants to improve it, then such a loan is the best way because the tenure is short. Repaying the loan on time significantly improved the credit score of an organization.
Strict, Shorter Deadlines
As mentioned above, unsecured business loans have short repayment tenures, which significantly helps SMEs businessmen to effectively plan their budget, such as when and where to spend the money.
A short repayment tenure also helps cut off the burden of a long-term repayment liability. Moreover, entrepreneurs get the flexibility to make their decisions without fussing about the money.
Unrestricted Business Finance
Taking an unsecured business loan for SMEs does not require the entrepreneurs to specify the exact purpose of the loan while applying for it, unlike a secured business loan from a bank that requires mentioning the exact purpose of the loan.
FinTech startups leave the usage the money to the borrower as in where and how to use the capital as long as it’s for the business purpose.
Unsecured Business Loans for SMEs are offered at Competitive Rates of Interest
Despite all the benefits of unsecured business loans to SMEs, as discussed above, technology-led FinTech startups provide business loans at competitive rates of interest. Accompanying this benefit is the flexibility to spend the money for business purposes while cutting off the burden of a long-term repayment liability.
With an unsecured loan disbursed quickly, SME owners don’t have to take small steps towards the growth of their business. They can take the required decisions freely and ensure the expansion of the business at every step taken forward.
Therefore, we can say that small businesses certainly contribute greatly to local economies. They bring growth along with innovations to the particular communities in which these businesses are established. Moreover, these small businesses help nourish economic growth greatly by providing new employment opportunities to deserving candidates that big corporations may not employ.
When it comes to how unsecured business loans are making an impact on the economy of India, FinTech startups backed by the various investors are doing a great job by making available the much-needed funds to entrepreneurs and SMEs nationwide.
This capital not only helps them grow exponentially but also create new employment opportunities for youngsters who are willing to work but big corporations may not hire them. Such individuals with innovative business ideas can grow on their own and provide opportunities to others as well.
Needless to say, when it’s about capital for business, an unsecured business loan is your best buddy.