It is very difficult for small businesses to get unsecured business loan. And if you manage to get one, the uncertainty lies among the interest rates and the risk associated with it.
But as a small company owner, you may find yourself in need of finance now and then to cover the various fixed and variable costs, for hiring more staff, acquiring additional inventory, or meeting the financial necessities arising in your business.
To satisfy these financial needs you can take the help of two types of loans secured loans or business loan no security. The essential question, though, is which loan is best for you. Today, we will inform you about both of these types of loans, including their differences and application procedures.
What is an Unsecured Business loan?
Unsecured Business loans are the ones that can be acquired without the need for any collateral. There are many banks and non-banking financial firms that allow borrowers to obtain these loans without any security. The lending institute relies on your creditworthiness and repayment capabilities. The bank may ask you for some personal collateral in exchange for providing a loan amount like your KYC details, salary amount, address proof, and many more.
An unsecured loan can help your business grow in so many ways. The majority of reasons why individuals or firms opt for unsecured business loan is for purchasing new equipment or machinery, buying assets or stocks, satisfying the increasing need for working capital, expanding business premises, extending operations to a new market, and improving business inventory.
Unsecured business loans are often accessible for micro and small businesses. However, the lending institution can make loans to firms, enterprises, self-employed people, and anyone else they see appropriate.
Difference between secured and unsecured loan
Before you know more about unsecured business loans, let me fill you in on the difference between a secured business loan and an unsecured business loan.
- Security: Unsecured business loan does not require any collateral, whereas secured loans require you to pledge as an asset as security.
- Rate of Interest: Unsecured business loans have a higher interest rate than secured business loans since they do not demand collateral. A secured business loan has a low rate of interest as you have to pledge your asset as security.
- Approval: An unsecured business loan gets faster approval as compared to a secured loan as the lending institutions do not need to spend extra time reviewing asset-related papers.
- Loan Amount: The loan amount of an unsecured business loan is determined according to your credit score while the loan amount of a secured loan is decided by the value of your asset given as security.
- In case of Default: In the event of an unsecured business loan, if you default, your credit score will suffer. While in secured loans, if you default, the lender may repossess the asset and sell it to recoup the outstanding amount of the loan.
Features and benefits of a Business Loan with no security
The features and benefits of a business loan no security are as follows.
- Unsecured business loans have low-interest rates to assist you in effortlessly reaching your company objectives.
- You can get a loan amount ranging from between ₹5 lakhs and ₹25 lakhs as per your requirements.
- You don’t have to worry about the repayment tenure because you get a flexible tenure of up to 36 months on your loan.
- Whether you are a retailer, manufacturer, B2B service provider, wholesaler, or distributor, this loan is available for all.
- You get a variety of repayment options including PDC, NACH< ECS, and cash.
What is the application process for a business loan with no security?
The application process for a business loan with no security is very straightforward. Here is a guide on how you can apply for it:
- Before applying for unsecured business loan make sure that you go through the eligibility criteria. As this loan is available for small and medium enterprises with at least 5 years of experience, you should be financially sound with a good credit history.
- Open the website of your lending institute and use apply now button to generate the application.
- In the application form fill all the necessary details.
- After that submit the form along with all the KYC documents, the most recent audited financials, GST return for the fiscal year, bank statements for the previous six months, and a list of directors or shareholders patterns, if applicable.
- Depending on your needs and the documentation you provided, decide the amount of the loan and the repayment tenure of your loan.
- At last, go through the terms and conditions before accepting them to complete the application procedure.
This is the fundamental information you need to know to get unsecured business loan. The application procedure for a business loan no security is fairly straightforward, and the best part is that it is authorized immediately after the application is submitted. The loan’s flexible payback time is a convenience for many individuals who apply for it, making it one of the appealing features that draw people towards it.
