Unsecured Business Loan: All You Need to Know

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 & Loan Amount on Unsecured Business Loan

The unsecured business loan interest rate offered by leading banks and NBFCs starts from 16% p.a. and the maximum loan can be availed up to Rs. 2 crores. The interest rates shall vary from bank to bank, depending upon the applicant’s profile and business requirements. The unsecured business loan interest rate depends on various factors, such as the 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 to the business and help the entrepreneurs or management to realize the organization’s true potential.

Types of Unsecured Loans for Businesses

Term Loan: Any loan whether it is secured or unsecured that is availed for specific time duration and needs to be repaid in form of EMIs within the 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 numerous Government initiated loan schemes under which small business owners can avail business loans at a comparatively lower rate of interest. These schemes include Mudra loan (PMMY), 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 instant cash requirement of the borrower. The loan amount offered under Microlending ranges from 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.

Additional Unsecured Loans include Personal Loan, Education Loan, Loans on Credit Cards, etc.

Eligibility Criteria

• Age Criteria: Minimum age of 18 years at the time of loan application and maximum 65 years at the time of loan maturity
• Credit 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
• Bank details or last 6 months’ bank statement

Also Read: What is the eligibility criteria for a Business Loan?

Comparison of Business Loan Interest Rates offered by Top Banks/NBFCs

Bank/NBFCs	Interest Rate
Axis Bank	10.75% p.a. onwards
Flexiloans	1% per month onwards
HDB Financial Services Ltd.	8% - 26% p.a.
HDFC Bank	10.75% - 25% p.a.
IDFC First Bank	10.50% p.a. onwards
Indifi	1.50% per month onwards
Kotak Mahindra Bank	16% - 26% p.a.
Lendingkart	12% - 27% p.a.
Mcapital	2% per month onwards
NeoGrowth Finance	15% - 40% p.a.
Tata Capital	12% p.a. onwards
UGRO Capital	9% - 36% p.a.
Bajaj Finserv	10% to 26%

Features

Different banks have varied criteria and features for their unsecured business loan products. Here are some common features of these loans:

• Unsecured business loans are offered without any collateral/security
• 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. 1 crore, depending on the business size and need
• The tenure of the loan is usually flexible and can range from 1 to 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 loan.

Also Read: How to Apply for Business Loan for New Business

Unsecured Business Loan Providers in India

Most banking and financial institutions offer unsecured business loans to their customers. However, the interest rates and eligibility criteria shall vary from one lender to another.

Steps to Apply for a Business Loan

To apply for a business loan, applicants can check and compare 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/Security	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
Processing Fee	Low	High
Repayment Tenure	12 months – 5 years	5 years – 30 years
Credit Score	Thoroughly checked and considered by lender	Only checked by lender
Approval Rate	Low	High
Loan Disbursal Time	Within 1-2 working days	Depending on business requirements, can exceed 7 – 10 working days
Pre-payment Options	Flexible	Rigid

FAQs

Ques. Where can I get an unsecured business loan?

Ans. To avail any type of business loan you may here check and compare various loan options under a single digital platform and pick the one as per your business requirements.

Ques. Can I get an unsecured business loan for a 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. There is no minimum loan amount to borrow and the maximum unsecured loan amount offered is up to Rs. 2 crore.

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.