All you need to know about unsecured business loans


Unsecured loans are a sort of financing that is provided by the bank or NBFC without the need for the applicant to furnish any collateral. These unsecured business loans are provided based on the applicant’s financial information, including their income, credit score, and other factors. Unsecured business loans for startups are available to manage cash flow or launch new businesses without having to provide the bank with any security or collateral. The risk level for the bank or NBFC remains high because no collateral is needed.

Types of Unsecured Business Loans

Term Loan: Any loan, secured or unsecured, that is taken out for a set period of time and must be returned in the form of EMIs within that time period.

Working Capital Loan: This type of loan can be used to cover a company’s ongoing costs and is approved based on the applicant’s creditworthiness and ability to repay the loan.

Overdraft: An overdraft is a specific kind of loan or credit limit granted by the lender that may be accessed in segments determined by the financial institution. Only the amount that has been used or borrowed from the allotted or approved credit limit is subject to interest charges.

Payroll Financing Loan: Payroll financing is a type of loan that can help you get a line of credit when there is a shortage of cash flow to process payrolls for your employees.

Micro Loans: Micro loans are typically provided by Micro Finance Institutions (MFIs) to help borrowers with short-term cash needs. Depending on the needs of the firm, the loan amount granted under micro lending ranges from Rs. 5,000 to Rs. 2 lakh or more.

Business credit cards: Entrepreneurs can use their business credit cards as collateral for business loans. The loan amount is essentially a credit line or lines of credit that the lender has approved to help a business with its working capital needs.

Eligibility Requirements

  • Age requirements include being at least 18 years old at the time of loan application and no older than 65 years old when the loan is due,
  • Having a credit score of 750 or higher
  • Operating a business for at least one year with signs of profitability, and doing so from the same location for the previous year
  • Having a regular source of income with pay stubs.

Main Features of Unsecured Business Loan

  • The requirements and benefits for unsecured business loans programmers vary between banks. Here are some traits that these loans typically have:
  • Unsecured business loans are provided without the use of security or collateral, and are instead awarded based on the applicant’s creditworthiness and payback record.
  • The lender may also take into account additional requirements. For example, banks typically demand that a business be operating profitably for at least two years.
  • The loan amount may range from Rs. 10,000 to Rs. 1 crore, depending on the size and needs of the business.
  • The loan’s term is typically flexible and can be anywhere between one and five years, or even longer.

Who can apply for Unsecured Business Loan?

Start-up enterprises, business owners, retailers, traders, manufacturers, SMEs, MSMEs, private companies, public companies, large enterprises, and partnership firms can apply for an unsecured business loan

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