Loan for Business without Security in India
Most young businesses are in dire need of funds to grow their business and meet everyday expenses. Business loans are a great solution to meet these needs. However, business loans are of two types- secured and unsecured. In secured business loans, borrowers need to pledge security whereas, in unsecured business loans, there is no collateral involved. Most banks seek collateral to secure themselves in the case of default and non-repayment of loan amount by the borrower. However, banks offer unsecured business loans too but the rate of interest charged on them is higher in comparison to the secured loans.
What are Loans for Business without Security?
A business loan which doesn’t require any collateral as security is called Unsecured Business Loan or a Business Loan without Security. These loans are given by banks and some NBFCs.
Businesses need an extra dose of cash always. This cash can be used for buying machinery, raw materials or for meeting everyday expenses or paying salaries to staff. And at an early stage, businesses usually do not have or don’t want to put any property as collateral in the bank. Banks in return charge a higher rate of interest to counter the risk involved. Unsecured business loans are a great bet for expanding and growing business.
Features of Business Loan without collateral:
- No collateral required
The most important feature of these loans is the fact that they don’t require any collateral or security. This factor makes it perfect for young businesses who do not own any big machinery or assets.
- Relaxed criteria for loan approval
Many banks and NBFCs offer business loans without security easily without any cumbersome documentation. The loan procedure is easy and quick and the loan is disbursed in a few days post-approval.
- Higher rate of interest
Since there is no security for lenders involved, they are at higher risk. That is why they charge a higher rate of interest. However, borrowers can negotiate further with the lenders on account of the loan amount, net income, employment status, etc to get the best deal.
Benefits of Loan for Business without collateral security:
- Lesser paperwork - The process of acquiring these loans is fast and less cumbersome as minimal documentation is required.
- Quick disbursal - As the paperwork involved is less, these loans are processed, approved and disbursed fast.
- Easy application procedure - The loan application process is simple. One can apply online directly on the bank’s website or on the website of Fintech players like LoansJagat which provides an excellent platform for you to compare and grab the best deal.
Business Loan without collateral security Eligibility
Business loan eligibility criteria are different for different lenders.
- Age: Lenders consider the age of the borrower as an important aspect. Individuals between 23 years to 65 years are given business loan without collateral security on account of their repayment capacity. The age bracket varies from one lender to another.
- Business Performance: Lenders would obviously look into your business performance before giving the loan. No lender would like to finance a business which is unstable and shows no signs of growth. Banks prefer those businesses which are growing and have a strong future in terms of stability. Your current business performance also determines the loan amount which the bank choose to approve. Most banks offer loan amount of 60% to 80% of your net profit.
- Experience: Some lenders are skeptical in giving loans to new businesses because of their lack of experience as there is no assurance involved whether the business will run in the long run and incur good dividends. Lack of experience is one determining factor whether the business loan will be approved or not. Lenders prefer to lend to businesses with at least 3-5 years of experience.
- Credit Score or Credit Rating: Your creditworthiness is an important factor which the banks consider. Banks and lenders consider the credit rating of the business if the unsecured business loan is being taken on account of the business. However, if the business loan without collateral security is being charged in the name of the business owner, then his credit score will be taken into consideration. A strong credit score ensures quick disbursal of loan.
Things to consider while opting for Business Loan without collateral security are:
Before opting for an unsecured business loan, consider the following:
- Get yourself abreast with all the clauses and terms and conditions of the loan before signing the loan contract.
- Don’t take a hasty decision and consider the rate of interest offered to you by the bank. Try to negotiate to grab the best offer.
- Also, check for other charges like foreclosure fee or penalties.
Before making the final plunge, do proper research so that you choose the best deal. Compare different lenders on LoansJagat and choose the one which meets your needs.