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Unsecured Business Loan

Today, conducting business is the most profitable and trustworthy activity ever. But it’s hard for young business owners to make enough money to keep their businesses running smoothly. Many small business owners have few assets because they do not engage in significant manufacturing or are beginners. In such a circumstance, people continually search for a new source of obtaining a loan without complications and tedious documentation. When this happens, an unsecured business loan can help in these situations.

What is unsecured business loan?

Unsecured loans, as their name implies, do not need the borrower to pledge any assets or property as collateral to be approved. This kind of loan is helpful for people who want to start a small business but don’t have much money. The unsecured business loan for a startup can be approved without requiring collateral, a requirement for other forms of loans.

Unsecured business loan Interest Rate

The unsecured business loans are obtained to launch a new business, manage or develop an existing enterprise, or for any other commercial purpose. These loans provide the business with new capital and assist the entrepreneurs or executives in realising the organisation’s full potential.

Banks and NBFCs offer unsecured business loans at 16% per year. But the interest rates will differ from bank to bank and depend on the applicant’s background and business needs. The interest rates on unsecured business loans rely on the following different factors

  • The applicant’s financial history
  • Credit score
  • Repayment capabilities
  • Creditworthiness
  • Amount of the loan
  • Business turnover or monthly income
  • Business requirement

Types of unsecured business loans

Standard unsecured business loans include

  1. Term loan refers to any loan taken out for a specific duration and paid in monthly instalments (EMIs) within a specific timeline. It is common for them to be used for one-time purposes, such as purchasing a building, a piece of equipment, or land. They are only for a limited period, and there is no requirement for collateral.
  2. Overdrafts and lines of credit There are no limits on how many times you can withdraw money from this unsecured business loan. In the case of periodic business payments, you can pay back the interest you accrued on the amount you have withdrawn.
  3. Working Capital Loan This form of unsecured business loan’s operational needs depend on the credit score and repayment ability.
  4. Government Scheme Loans An unsecured business loan for the startup has been launched by the government of India. Scheme loans for developing businesses in various financial sectors in India include Mudra loans, Standup India, the CGTMSE, the PMEGP, and SIDBI’s Loans in 59 minutes. They offer small enterprises and startups unsecured loans in India with minimal interest rates.
  5. Merchant Cash Advance It is a cash advance based on credit card sales paid into a merchant’s account. The loan amount is based on the business’s monthly revenue or swipes of credit cards.
  6. Micro Loans Microfinance institutions, often known as MFIs, are the organisations that typically make microloans available to borrowers to satisfy their immediate financial requirements. Microlending offers loans ranging from Rs. 5,000 to Rs. 2 lakh or more, based on business requirements.
  7. Business Credit Cards Entrepreneurs can also use their company credit cards as collateral for business loans. The lender offers credit lines to support a business’s working capital needs.

Other unsecured loan includes Personal Loans, Education Loans, Credit Card Loans, etc.

Eligibility Requirements for unsecured business loan 

The following are the specific criteria for unsecured business loan eligibility

  • It would be preferable if you are an Indian citizen.
  • While your business has been in existence, the durations should be greater than two years.
  • Your age range should be 18-65. 
  • You must be self-employed, i.e., a business owner.
  • You need to have a credit/CIBIL score of at least 750.

What are the specific features of India’s unsecured business loans?

Depending on the bank, unsecured business loans have distinct features. Some common features are

  • No collateral or security is required for an unsecured business loan.
  • The primary factors assessed by the lender are the applicant’s creditworthiness and repayment capabilities.
  • Most financial institutions require that your company has been in operation for at least two years to qualify for a business loan.
  • There is a minimum loan value of INR 10,000, and the maximum amount is 1 crore, regardless of the size and needs of the business.
  • The tenure ranges from one to five years, and sometimes even more.
  • An unsecured business loan is available to startups, entrepreneurs, retailers, merchants, manufacturers, SMEs, private corporations, MSMEs, publicly traded companies, large organisations, and partnership firms.

Unsecured business loans providers in India

Most banking and financial organisations provide their customers with unsecured business loans. However, interest rates and eligibility requirements will vary depending on the lender.

The internet has increased the availability of options for an unsecured business loan. Many companies are offering unsecured business loans online, and many of them focus specifically on this field. A high credit score is one of your best options when applying for an unsecured business loan. Therefore, you should expect your application for an unsecured business loan to be granted quickly if you have a high credit score.

How to get a business loan in five easy steps

A business loan can be obtained by checking and comparing several customised loan choices to meet a certain business’s specific needs. To apply for an unsecured loan, start by selecting “Business Loan” on the website’s homepage and then follow the steps outlined below.

  • Step 1: Based on your needs, determine the loan amount and term for your unsecured loan. Fill out all required fields, including desired loan amount, job status, gross annual sales or turnover, place of residence, number of years, your active business condition, collateral types, and mobile phone number.
  • Step 2: Check the terms & conditions thoroughly before signing them and submitting the application. Check the box here to accept the conditions and proceed. Click “Unlock the Best Offers”
  • Step 3: Specify the Business type, Industry, Gross Annual Income, Bank Account, current EMI, Contact information, PAN card, Personal details, and Email.
  • After entering all the necessary information, a representative from the bank will call you to begin the loan process.
  • Step 5: When your loan application has been approved, the sanctioned loan amount will be sent to your specified bank account within the stipulated business days.

Unsecured Loans Vs. Secured Loans

Type / Category of LoanUnsecured loanSecured loan
Collateral/SecurityNot necessaryNeeded in the form of equipment, raw materials, stock, machines, buildings or corporate entities
Interest RateRelatively higherLower than those for unsecured loans
Amount of the LoanAppropriate loan amountA large loan amount
Processing CostsLowHigh
Repayment Duration12-months to 5-yearFrom 5 to 30 years
CIBIL scoreLenders perform a thorough review and assessmentOnly inspected by the lender
Approval RateLowHigh
Loan Disbursal TimeWithin 1 to 2 business daysBased on the requirements of the business, it can take more than 7–10 working days.
Pre-payment AlternativesFlexibleRigid

FAQs on Unsecured Business Loan

How do you pay back loans for your business?

You repay with monthly payments (EMIs). Several banks provide ACH (Automated Clearing House) services. Check with your bank to determine if you can benefit from this service.

What is a business loan foreclosure?

You can pay back the total amount of your loan before the close of your tenure period. Before you may file for foreclosure, you must, however, pay at least six EMIs. Some banks do not charge for these services, while others charge between 4% and 5% of the loan amount.

Can an NBFC provide me with an unsecured business loan for the startup?

Yes, you should take out an unsecured business loan from a non-banking financial company (NBFC) rather than a bank, as the rate of interest offered by the banks will be greater if the applicant lacks a financial history or an excellent credit score.

What average credit score is required to obtain an immediate loan?

Lending institutions prefer credit scores in the range of 750 to 900.

Is the interest rate on an unsecured business loan in India for a new business high or low?

An unsecured business loan has higher interest rates than a secured business loan since there is no collateral to repay the lender in the event of nonpayment.

Read more:

PMEGP LoanGovernment Loan SchemesGovernment Subsidy Loan for Business
Mudra LoanMSME Business LoanMSME Loan for Startup Businesses
Collateral Free LoanStartup Business LoanSME Loan
Small Business LoanCash Credit LoanSIDBI Scheme
Mahila Samridhi YojanaBusiness Loan for Women