A Business Loan that is taken either from a bank or any other NBFC, without the guarantee of collateral is called an Unsecured Business Loan or a Business Loan without Security. These are loans taken with the intent of starting a new business, maintaining or expanding an existing business, or for any other business need. These loans inject fresh capital into the business and help the entrepreneurs or management to realize the organisation’s true potential.
Unsecured loans are given without the applicant having to provide any collateral to the bank. These loans are given on the basis of an applicant’s credit score and income. Since there is no collateral, the risk factor is high for the bank. Therefore, the banks charge a higher rate of interest on these loans as compared to secured loans.
Benefit of Unsecured Business Loans
1. No Collateral Required
The very first characteristic of unsecured business loan is that it does not require collateral or security. This feature makes it ideal for those businesses that are small or medium-sized and do not own substantial assets. Businesses belonging to the service sector are ideal to secure an unsecured loan.
2. Easy Loan Process
It usually has a very simple loan application procedure. You can apply for it online either through the lender’s website or through an online lending platform or offline by visiting your lender’s nearest branch.
3. Flexibility
Collateral-free Business Loans are powered by the Flexi loan feature. This unique feature enables businesses to borrow according to their needs and repay as per their cash flow. This facility also provides you the choice to pay only the interest amount as EMI, while repaying the principal amount at the end of the loan tenor.
4. Lesser paperwork
Minimal documentation makes the whole process of acquiring unsecured business loans hassle free.
5. Quick Disbursal
Since unsecured business loans involve minimal paperwork, it is processed and disbursed faster. On the other hand, secured loans take longer for disbursement as the verification of the collateral and related documents takes time.
Eligibility
- The business should be based in India.
- Most banks look for an age bracket between 23 to 55 years but it can vary from one lender to another.
- Business should have a vintage of at least three years
- Current business performance of the business is the next crucial factor that will decide the fate of the loan. Usually, bank/NBFC give a loan amount of up to 60% to 80% of your annual profit.
- Business should have filed Income Tax returns for at least the 3 years
- To avail a regular unsecured business loan, lenders will prefer you to stay in the business for at least 2-3 years.
- Credit score are numerical representation of your creditworthiness. The credit score should be more than 700.
Documents Required
- Income Tax returns of last 2 Years
- Last 2 years audit reports and audited Financials including those of associate companies if applicable
- (Your debtors and creditors list with transaction details is must)
- Last 12 months bank statements
- Certificate of Incorporation – for private limited companies
- Partnership deed for LLPs, MoA (Memorandum of Association) / AoA (Articles of Association) for Private Ltd companies
- Certificate of Registration for sole proprietors or Single Person Company
- Residence / Office Ownership Proof
- Aadhar Card for Directors, Promoters, Applicants
- Address Proof and Identity Proof ( Passport, Voter ID, PAN Card, Driving Licence, Aadhar Card )
- Utility Bills for Telephone / Electricity / Internet
- Company and Directors PAN Numbers
- Cash flow statements and cash flow projections for more than 1 Crore loans
- Equipment or Machinery Invoices or Performa invoices or Quotations for Equipment financing from vendors
How to Apply?
Apart from banks and NBFCs, there are many other lending institutions that offer unsecured business loans. They can be availed quickly and are usually of short term in nature. Omozing provides Unsecured Business Loan Interest Rates starting from 9%. You can alslo check your eligibility using Business Loan EMI Calculator.