What is an unsecured business loan?
You borrow money from a lender for your business with an unsecured business loan, the lender won’t ask you to put up collateral, and you can pay back the loan in equal monthly payments (EMIs). So how do lenders give out loans without getting anything in return? Well, they look at your credit history and income to figure out if you can pay back the loan. Borrowers who qualify can get an Unsecured Business Loan to start a new business, grow an existing one, update equipment, pay for working capital, fix up the business space, etc. Micro, small, and medium-sized businesses (MSMEs) can benefit from these loans because it may be unlikely that they have property they can use as collateral.
Types of unsecured business loan
There are a few types of credit that don’t need collateral. Here are a few often used unsecured business loan online:
- Term Business Loan: You can get high-value Business Loans without collateral, a guarantor, or any other security. The term loan can be paid back over up to four years. You can use the money to meet your business’s needs in less time.
- Overdraft (OD) Facility: If you have a business account like a Current Account, you can borrow money from your lender using OD. As a line of credit, you pay interest on the amount of the loan you have already used for your business.
- Loan on Business Credit Card: If you have a Business Credit Card, you can get Loans on Credit Cards that have already been approved. The lender will pre-approve you for a loan based on how you use your credit card and pay your bills. If you qualify, the loan amount can be transferred to your bank account in a few minutes to a few hours.
- Short-term loans: These are usually granted for a period of less than one year, though they may be renewed if you need more time to repay them. The interest rate is typically higher than what you’d pay on a long-term loan, but it’s lower than what you’d pay on an installment loan.
- Payroll Financing: This is a new type of loan in the market which helps employers pay timely salaries to their employees along with improving their cash flow. This is a type of unsecured business loan that helps you to pay your employees on time along with growing your business.
- Financing plans backed by the government: The MSME sector has become one of the most important parts of the economy. India’s government has created many credit programmes, such as the Pradhan Mantri MUDRA Yojana (PMMY), Stand-up India, and Credit Guarantee Schemes (CGS), to help more people start their own businesses.
- Consumer Loans: Small and medium-sized businesses (MSMEs) can get a buy-now-pay-later plan to buy business equipment like computers, laptops, air conditioning, printers, security systems, and so on.
Eligibility Requirements for Unsecured Business Loan
For unsecured business loan eligibility you’ll need to meet certain requirements. The most important of these are:
- Credit score: Your credit score will indicate how likely you are to repay your loan on time and in full. A good score will help get you approved for the best rates and terms available.
- Time in business: If you’re just starting out, lenders may ask that you have been in operation for at least six months before applying for financing; this helps them gauge how well-established your company is and whether or not it has a strong chance of success going forward (and paying back its debts).
You’ll need to have a good credit score, at least 3 years in business and a solid business plan. You’ll also need to provide financial statements and collateral for the loan if you are not able to meet the requirements of your lender.