An unsecured business loan or an SME loan is provided by a bank or an NBFC to a small business or an individual business owner, without asking for any kind of collateral in return. There is hence, no need to provide any guarantor or security for this kind of loan and also there are certain criteria to be met, by and large, they can be easily met. If a business requires financing, opting for a unsecured business finance is a much option than asking friends and relatives for money. Here are some of its advantages for SMEs.
No collateral required: As mentioned earlier, this form of loan requires zero collateral. Hence the business owner does not have to undergo the risk of losing an asset. There is also less paperwork involved because no documents pertaining to the ownership of assets have to be submitted or verified and likewise no time is lost for the valuation of the assets, making unsecured loans fast to obtain.
For the same reasons, the total time for the disbursal of the loan is much less and since the criteria for the eligibility are fairly relaxed, and there is no need for collateral, the loan can be disbursed in as less as 48 hours. Most of the time due to the delay in loan disbursal the loan a business has to suffer losses in the meantime but such circumstances hardly arise in case of unsecured loans.
Shorter deadlines: Unsecured loans do not have a long tenure for repayment and that makes it easier for the SME to plan their budget. Hence, if one is applying for machinery finance, then they can plan how long will it take to buy and get the machinery up and running to make enough profit to pay back the loan.
Credit rating: Unsecured loans are granted on the basis of the credit rating of the business owner or the company itself and if the finances are well managed, then chances of getting approval are highly increased. It does not matter that there is no collateral to offer- if the business makes profit steadfastly enough, as reflected in the bank ledgers and IT returns of the company, and if the credit score reflects that the business has well-managed finances and a sound economic ground, then the loans are almost always approved. Some also opt for an unsecured loan to further improve the credit rating by paying off all debts in time.
No restriction on financing: In case of the unsecured business loan, as long as the loan amount is used for some aspects of business management, it doesn’t really matter how the funds are being used. In case of secured financing, the end user has to be specified and the borrower cannot deviate from it. As long as the unsecured business loan is used for meeting business expenses, there is no restriction to its usage. Hence, the funds can be used as a working capital loan, for equipment finance or for any other aspect of business like marketing.
Fixed or Floating Interest: Unsecured loans have from banks and NBFCs like Baja Finserv are quite competitive and can be easily paid off. Since machinery loans interest rates, and unsecured loan interest at large have largely gone down, it is possible for most SMEs to opt for such loans without having to worry about repayment. Moreover, with flexible and convenient repayment options, like Flexi Loans and Interest Only Loans, most SMEs can plan in advance about how they will repay their loans.