What is Unsecured Business Loan?
Unsecured loans are a type of funding, which is offered without the applicant having to provide any collateral to the bank or NBFC. These unsecured business loans are offered on the basis of an applicant’s financial documents, credit score, income, etc. Unsecured business loan for startup is availed for starting a new business or managing business flow without submitting any collateral or security with the bank. Since there is no collateral required, the risk factor remains high for the bank or NBFC.
Interest Rate on Unsecured Loan
The unsecured business loan interest rate offered by leading banks and NBFCs starts from 14.99% onwards per annum. However, the interest rates shall vary from bank to bank, depending upon applicant’s profile and business requirements. The unsecured business loan interest rate depends on various factors, such as applicant’s financial history, CIBIL/credit score, repayment capability, creditworthiness, annual turnover, etc.
These are loans taken with the intent of starting a new business, maintaining or expanding an existing business, or for any other business need. These loans add fresh capital into the business and help the entrepreneurs or management to realize the organisation’s true potential. The unsecured business loan interest rates offered by financial institutions starts from 14.99% onwards.
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.
Eligibility Criteria for Unsecured Business Loan
- Applicant should be an Indian citizen with no criminal record
- Age Criteria: Minimum age of 18 years at time of loan application and maximum 65 years at time of loan maturity
- CIBIL Score: 750 or above
- Business existence: Minimum 1 year with signs of profit; operating from the same location for last 1 year
- Applicant should have a 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
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Different banks have varied criteria and features for their unsecured business loan products. Here are some common features of these loans:
- Business loans are given without any collateral
- These loans are given on the basis of the creditworthiness and repayment history of the applicant. Other necessary criteria may also be considered by the lender
- In most cases, banks require that the said business be in operation for at least 2 years with profit
- The loan amount can vary from Rs. 10,000 and go up to Rs. 50 lakh, depending on the business size and need
- The tenure of the loan is usually flexible and can range from 1-5 years, or more
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 loans.
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Unsecured Business Loan Providers in India
Almost every banking and financial institution offers unsecured business loans to its customers. However, the interest rates and the eligibility criteria shall vary from one lender to another.
How to Apply for a Business Loan?
To apply for a business loan, applicants can check and compare from various loan options that suit the business requirements. Follow the below steps to apply for a business loan by clicking ‘Business Loan’ on the homepage of the website.
Step 1: Fill in all the required fields, such as desired loan amount, employment status, annual gross sales or turnover, city of residence, years in current business, collateral type and mobile number.
Step 2: Check the below box to agree on terms and further Click to ”Unlock Best Offers”
Step 3: Further you are required to mention the Company type, Nature of business, Type of industry, Gross Annual Profit, Bank Account, any existing EMI, Full name, Gender, Residence PIN code, PAN card, Date of Birth and Email Address.
Step 4: After submitting all the details, the bank’s representative will contact you to proceed with loan formalities.
Step 5: Once your loan application is approved, within defined working days the approved loan amount shall get disbursed in your mentioned bank account.
Unsecured Loans vs Secured Loans
|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|
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Frequently Asked Questions (FAQs)
Ques. Where can I get an unsecured business loan?
Ans. To avail any types of business loan you may visit the nearest branch of the desired bank or shall go to the official website of the respective bank and fill and submit the loan application form online.
Ques. What is the interest rate offered under an unsecured business loan?
Ans. The interest rate offered starts from 14.99% onwards.
Ques. Can I get an unsecured business loan for new business from NBFC?
Ans. Yes, you shall take an unsecured business loan preferred from NBFC, as the interest rate offered by banks shall be higher as the applicant might not have financial history or good credit score.
Ques. How much money can I borrow in an unsecured business loan?
Ans. Unsecured business loans are given on the basis of the applicant’s income. Minimum loan amount that can be availed is Rs. 50,000 and maximum can go up to Rs. 50 lakh
Ques. What is the minimum and maximum repayment period of unsecured business loan?
Ans. The repayment period of unsecured business loan is 12 month to 5 years.
Ques. Is the interest rate offered under unsecured business loan for startup in India high or low?
Ans. The interest rates on an unsecured business loan are relatively higher, as compared to secured loan because there is no collateral submitted to compensate the loan in case of non-payment.