Unsecured business loans are an excellent funding opportunity for businesses that don’t own many assets. This loan doesn’t require collateral security to submit to the bank or NBFC. A secured loan uses assets as security, which means if things don’t work out, the lender can sell the assets to recover the value of the loan. 

Any company that’s growing fast requires finance immediately and can use unsecured loans. These unsecured business loans are offered based on an applicant’s financial documents, CIBIL score, income, etc. An unsecured business loan for a startup is availed for starting a new business or operating a business flow without presenting any collateral security with the bank. The absence of collateral keeps the risk factor high for the bank or NBFC.

Term Loan, Micro Loans, Working Capital Loan, Overdraft, Mudra loans, Stand-up India, Start-up Schemes, Prime Minister Employment Generation Program (PMEGP), Personal Loan, Education Loan, Loans on Credit Cards, etc are types of unsecured loans for businesses.

What are the Features of Unsecured Business Loans?

The key features of unsecured loans are as mentioned below –

1. Collateral not required

Banks or NBFCs do not require collateral in the case of unsecured loans. Collateral is the safety that the lender leverages against while extending funds to the borrower. In case of default by the borrower, the lender will be required to write off the unsecured loan as a bad debt.

2. High interest rates

Unsecured loans increase the risk for the lender. The lender often charges high-interest rates and prerequisites for unsecured loans as a form of coverage for the additional risk expected. Also, the bank can file a case and take the matter to court to prevent the borrower from defaulting.

3. No tax benefits

Some of the loans offered by banks oftentimes qualify for tax benefits. For example, home loans provide tax benefits. Unsecured loans do not provide any such tax benefit. 

4. Lower loan amount

The amount of loans extended in the matter of secured loans is higher compared to unsecured loans. In contrast, the borrower will be entitled to borrow only a less loan amount under an unsecured loan.

5. Short payment term

The repayment duration for an unsecured loan is lower. They range from 3 months to 5 years. However, most of the unsecured loans have a fixed term of repayment. The interest rates are variable and can change every month based on the outstanding balance.

6. Process Duration

Borrowers may find unsecured loans a more suitable option for borrowing smaller amounts because they can accomplish the loan approval process faster, as there is no need to evaluate assets.

What are the Eligibility Criteria for Unsecured Business Loans?
  • The applicant should be an Indian citizen
  •  The criminal background will be verified.
  • Age Criteria: Minimum age of 18 years maximum 65 years at the time of loan maturity
  • CIBIL Score: 750 or above
  • Business existence: Minimum 1 year with indications of profit; operating from the same location for the last 1 year
  • Applicant should have a regular source of income with salary slips or bank statements with ITR
  • The applicant must possess at least 2 years of substantial business expertise in the same field for which they are applying for the loan.
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