Banking, Business Loan, Loans

Unsecured Business loans in India

Posted By: Admin
September 6, 2022 |

Get a business loan without security or guarantee to banks in India

Unsecured Business loans: A business always needs money to feed to grow and compete in the market. Businessmen have a limited amount of capital which can be infused into the business. Here banks and NBFC (Non Banking Financial Companies) play major roles. Banks provide loans to run businesses, expand and grow existing businesses, to start a new business. There are many schemes in which a businessman can avail loans from banks. Some of them are secured business loans and some of them are unsecured business loans. Not every businessman is capable of providing collateral security to avail loans from banks. In this scenario, unsecured loans help a businessman in tough times.

Table of content

Types of unsecured business loans,
Eligibility to avail unsecured business loan,
Various features of unsecured loans,
Important aspects of unsecured business loans

Types of unsecured business loans

Unlike any other loan, various types of business loans are available in banks and NBFCs.

1. Term Loan –

The loans which a businessman can repay in installments are called term loans. Mainly unsecured business loans are provided to create assets like purchase of machinery, purchase of furniture and fixtures, repairs, and renovation of buildings etc. The loans are given based on the lump sum expenditure report.

2. Working capital and overdraft –

Working capital and overdraft works almost the same. This is a limit set by the lender based on financial transactions in account (mainly transactions in current account), turnover of the business, profitability and need of funds. This loan facility is provided to meet day to day expenses of business-like payment of wages, purchase of raw material, other necessary expenses related to business.

3. Business Credit cards –

Many lenders provide business cards based on financial transactions of businesses. Businessmen can avail loans against the credit limit set by the lender. This loan can be availed to meet daily expenses of businesses. Business credit cards are not commonly used and not so popular in the Indian market.

4. Small amount loans –

These loans are designed to cater to the needs of small merchants. Lenders provide this loan as a personal loan but to run a business. The amount of these loans are relatively less than other business loans.

5. Government Schemes –

The Government of India has started many loan schemes for businesses in India. Some popular schemes are Mudra loans (PMMY), Pradhan Mantri Employment Generation Program (PMEGP) loans, Stand-Up India Loans, Start-Up loans, Pradhan Mantri Rojgar Yojana (PMRY), Pradhan Mantri Kaushal Vikas Yojana (PMKVY), Coir Udyami Yojana (CUY), Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-KGY), SIDBI loans. Most of the schemes are start-up business loans by the Indian government.

Government business loan schemes

Eligibility to avail unsecured business loan

As discussed above in the article, the eligibility criteria to avail an unsecured business loan is tougher than secured business loans. The unsecured commercial loan or MSME loan or business loans do not require collateral security against the loan amount. Hence lenders always want to be more secure and certain about repayment of loans.

1. First and foremost thing which a lender scrutinize is the credit history of the applicant. Credit agencies provide separate business credit history, which indicates financial health of a business. Lenders are also keen to see business owners personal credit history to avoid fraudulent applications.

2. Financial transactions of businesses of the past one to two years. The turnover and profitability of a business is a focus area which lenders see before providing unsecured business loans. The current account statement of business shows financial transactions. If a business does not have a current account, it can provide any type of financial statement which records expenses and income of business.

Importance of current account to grow your business.

3. Balance Sheet and project report. If a business is already in existence, the lender will ask to submit a balance sheet and profit loss statement for previous years. However, if the business is not yet started and a loan is required to start a business, lenders may ask you for a detailed project report. The detailed project report must include business activity or line of business, expenditure estimate, source of funds other than proposed loans, business ownership etc. Some lenders may provide a format of detailed project report.

Various features of unsecured loans

Features of unsecured loans may vary bank to bank and as per scheme guidelines in which loan is applied. However, some of the features are common

No need of collateral security to avail this loan.
Unsecured loans are provided based on financial transactions.
Existing businesses’ profitability and scope of business can fetch higher loan amounts.
Unsecured business loan tenure is generally 1 – 5 years.
The loan amount can be as low as Rs. 10,000/-. Hence small vendors can also avail loans from banks.

Important aspects of unsecured business loans

There are certain terms and conditions which one should know before applying for a business loan.

The interest rate of unsecured loans are comparatively higher than secured loans.
The amount of unsecured business loans are relatively low.
Repayment period of these loans is less than secured loans.
Lenders may charge you a prepayment penalty while making extra payments.
Banks charge less interest rates while comparing with NBFCs.
Government schemes are mostly available in banks only.

Conclusion

When you try to avail a business loan, get thorough knowledge of schemes available in banks and government initiatives. In some cases, a businessman can avail maximum amount of Rs. 2 Crore as unsecured business loans. In addition to this, Some of the lenders process unsecured loans as fast as personal loans, even within a day. Get help from financial experts and grab the best opportunity to grow your business.

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