We often hear that to apply for a business loan. First, we need to have collateral in return for which we will be given the loan. However, this is not the case; there is a concept of Unsecured Business loans, in which you can apply for a business loan without any collateral to the banks.
- The unsecured business loans are given based on the financial history of the applicant, such as credit scores, financial documents, presentations, past income sources, and the nature of the business.
- Unsecured business loans are a matter of legal consultation. In this article, we will learn more about an unsecured business loan.
What is an Unsecured Business Loan?
It is a type of fund which is provided to the applicant by the bank or the NBFC without paying or providing any collateral against the funding to them. As there is no collateral to regain the investment, the amount remains at high risk. The unsecured business loans are offered by all the leading banks and NBFCs at a 16% per annum interest rate with an upper cap of rupees 2 crores which can be availed through this.
Types of Unsecured Business Loans
Term Loans – if any unsecured business loan is taken for a definite time frame or period, which has to be repaired within that specific term in the form of EMIs. These Unsecured Business Loans are called term loans.
Working Capital Loans – these unsecured business loans are available to meet the day-to-day expenses which occur outside of the business and can only be granted to the applicant based on the credit score and the capacity to repay the amount.
Government schemes – various government schemes provide unsecured business loans to small business owners at a very minimal interest rate intending to empower the economic sector. The example of leaves schemes at prime minister employment generation program startup India startup scheme mudra loan credit guarantee fund trust for micro and small enterprises and SIDBI’s loan in 59 minutes.
Microloans – various microfinance institutions offer unsecured business loans under this category which range from 5000 to 2 lakh in rupees or according to the need of the applicant. Loans under this category are usually in smaller figures than other unsecured business loans.
Other unsecured loans – various loans are taken without any collateral. These loans can also be considered unsecured business loans, as in cases of students applying for education loans, personal loans, or loans received on credit cards.
Eligibility for applying for the Unsecured Business Loans
- As per the rules and regulations of the RBI act, any person who was awake between the age of 18 and below the age of 65 years the maturity to avail of a loan.
- The credit score of the applicant applying for unsecured business loans should be 750 or more than it.
- The business for which the unsecured business loans are being taken should be at least showing one year of profit from the same location.
- The applicant applying for unsecured business loans has to give a regular source of income with the payment or salary slips.
- Balance sheets and the last 6-month bank statement will be verified by the bank to be eligible for unsecured business loans.
Follow the steps below to apply for Unsecured Business Loans
Step 1: Complete all required information, such as loan amount, employment status, annual gross sales or turnover, city of residence, years in present business, collateral type, and mobile number.
Step 2: Read all the terms and conditions related to the unsecured business loan you are applying for.
Step 3: You must also include the Business Kind, Type of Business, Industry Sector, Gross Annual Profit, Bank Account, and any current EMI. Detailed name, gender, PIN code for an address, PAN card, birth date, and email address are essential.
Step 4: After you’ve submitted all of your information to the bank, a bank representative will call you to finalize the loan process.
Step 5: If your loan application is granted, the approved loan amount will be sent to your specified bank account within a certain number of working days.
How much capital can I obtain through an Unsecured Business Loan?
Unsecured business loans are granted based on the applicant’s income. There’s no minimum loan amount, and the highest unsecured loan amount available is Rs. 2 crores. The cap has been put in to make it easy for the banks to get paid back in case of default on a loan.
Is the interest rate offered on unsecured business loans in India high or low?
Unsecured business loans have higher rates of interest than secured loans since there is no collateral to reimburse the loan in the event of a lack of payment. But if there is no collateral taken concerning the amount paid to the applicant, then the only source that remains is the higher interest rate.
Can I apply for Unsecured Business loans for my new Business Startup?
No, as the unsecured business loans require a high interest as there is no collateral taken by the banks, this makes them grant Unsecured Business loans for those with at least one year of profit-making that too from the same place. Although the government has brought schemes like Start-up India etc., to help new startups.
Unsecured business loans are of great value for small business owners and even for the bank itself. It is profitable for both of them. But the risks remain at the side of the bank only. However, promising clients can always repay the loan amount within the time period. If you are willing to apply for an unsecured business loan, remember to have a legal consultation with a lawyer or legal expert.