The common types of unsecured loans are:
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 inject fresh capital into the business and help the entrepreneurs or management to realise the organisation’s true potential.
Features of an Unsecured Business Loan
Different banks have varied criteria and features for their unsecured business loan products. Here are some common features of these loans:
- These loans are given without any collateral.
- An unsecured business loan usually has a high rate of interest as the risk taken by the lending bank is high.
- These loans are given based on the creditworthiness and repayment history of the business applicant. Other criteria may also be considered.
- In most cases, banks require that the said business be in operation for at least 2 years.
- The loan amounts can vary from Rs. 1-2 lakh and go up to Rs. 45-50 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.
- Most banks also offer an unsecured business loan with an overdraft facility.
- These loans are beneficial for well-established businesses.
- Private companies, public companies and partnership firms can apply for an unsecured business loan.
Benefits of an Unsecured Business Loan
Here are some common features of an unsecured business loan:
- Easily Accessible: All that an applicant needs to do is fill out the application and submit the necessary documents. The loan process can also be done online.
- Loan Based on Income: Banks give loans based on the applicant's business income. The higher the applicant’s income, the higher the loan amount. This is because banks assume that high-income businesses will have the capacity to repay bigger loan amounts.
- Minimum Documentation: There is minimal documentation, so the loan process is hassle-free.
- No Collateral: There is no collateral required for this loan. Therefore, the applicant does not have to worry about the bank taking over their business assets.
- Established Business: An unsecured business loan works for established business owners with strong credit scores.
