Thriving small businesses and start-ups can be initiated at times of economic uncertainty, as well. To start your business under your own name requires lot of research, skills, passion, confidence, fearlessness, as well as money of course. As small businesses or micro units do not require much capital to be invested at the initial stages. However, there are circumstances during the occupational tenure of small businesses that they require instant money to overcome certain cash crunch situations. Therefore, opting for unsecured business loans is always the correct decision, as there are no risks involved.
You can avail unsecured business loans without depositing any collateral or security to the lender. Although, small businesses do not have much to put as collateral, so unsecured loans can solve their problem of lack of capital, managing cash flow or meeting working capital requirements.
Unsecured business loan can be availed to start a small business under your own name. Some of the popular small businesses that you can start are further listed below:
- Currency Trading
- Data Entry Expert
- Day care services
- Juice or Sandwich Corner
- Placement services
- Professional Photography
- Real Estate Brokerage
- Social Media Expert
- Take-away Point
- Travel Consultant
- Tuition Classes
- Web Designing
- Wedding planning and many more
Types of Unsecured Loans for Businesses
Term Loan: Any loan whether it is secured or unsecured that is availed for a specific time duration and needs to be repaid in form of EMIs within defined time frame.
Working Capital Loan: Working capital loan can be availed to meet the day-to-day expenses of business and is approved based on the creditworthiness and repayment capacity of the applicant.
Overdraft: Overdraft is a type of loan or credit limit assigned by the lender which can be availed in parts defined by the financial institution. The interest rate is charged only on the used or availed amount from the assigned or sanctioned credit limit.
Loans under Government schemes: There are several Government initiated loan schemes under which small business owners can avail business loans at comparatively lower rate of interest. These schemes include Mudra loan, Stand-up India, Start-up Scheme, Prime Minister Employment Generation Program (PMEGP), Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), SIDBI’s Loans in 59 minutes, etc.
Merchant Cash Advance: It is a type of cash advance that is based upon the credit card sales deposited in a merchant’s account. Loan amount is decided upon the credit card swipes or monthly volume of the business.
Micro Loans: Micro loans are generally offered by Micro Finance Institutions (MFIs) to meet the instance cash requirement of the borrower. The loan amount offered under Micro lending ranges between Rs. 5,000 – Rs. 2 lakh or more depending upon business requirements.
Business Credit Cards: Entrepreneurs can also take business loans against their business credit cards. The loan amount is basically credit line(s) sanctioned by the lender to meet the working capital requirements of a business.
Comparison between Unsecured Business Loan & Secured Business Loan
|Loan Type / Category||Unsecured Loan||Secured Loan|
|Collateral||Not required||Required, in form of equipment/raw materials/stock/machinery/residential or commercial properties|
|Interest Rate||Comparatively higher||Lower as compared to unsecured loans|
|Loan Amount||Reasonable loan amount||High loan amount|
|Repayment Tenure||12 months – 5 years||5 years – 30 years|
|CIBIL score||Thoroughly checked and considered by lender||Only checked by lender|
|Loan Disbursal Time||Within 2-4 working days||Depends on business requirements, can exceed 7 – 10 working days|
Unsecured Business Loan Eligibility
- Age Criteria: Minimum age of 21 years at time of loan application and maximum 65 years at time of loan maturity
- CIBIL Score: 650 or above
- Applicant should be Indian citizen with no criminal record
- Business existence: Minimum 1 year with signs of profit; operating from the same location for last 1 year
- Applicant should have regular source of income with salary slips or bank statement with ITR
- Total business experience: Applicant should have at least 2 years of substantial business expertise in the same field for which loan is applied
Unsecured Business Loans for Small Businesses from Popular Banks
- Baroda Laghu Udhyami Credit Card
- Baroda MSME Capex Card and Loan
- SME Short Term Loan
- Simplified Small Business Loan
- SME Credit Card
- SBI Pradhan Mantri Mudra Yojana (PMMY)
- SME Smart Score
- PNB Seva
- SME Sahayog Scheme
- PNB Professional Scheme
- Working Capital Loan
- Short-Term Loan
- Loans for Startups
- Loans under CGTMSE scheme
- Loans without Financials
- Passport-sized Photographs
- Business Plan
- KYC Documents
- Owner details: Identity, income and address proofs of the business owner or partner
- Last 12 months’ bank statement
- Last 6 months’ salary slips, if employed
- Last years’ ITR and Sales tax report
- Business address proof with certified P&L statement
- Credit/CIBIL report
- Other documents, as required by the financial institution
Small Businesses or Micro Enterprises are launched keeping in mind a thought that with only limited resources, a business is backed by the business owner; to overcome any cash crunch situation or monetary urgency. In case these problems occur, then at least business owner has the support of unsecured business loan, wherein instant cash can be utilized to overcome this dire situation without submitting any collateral. We all understand the burden of a collateral; over and above the regular monthly loan instalments and continuous pressure of running and managing a business. Therefore, we recommend every small business owner to always opt for unsecured business loans, as it relieves burden and makes things simpler for you and your business.