Starting your own small business is a dream for many. The idea of being your own boss and not working for anyone else is fascinating. However, running a business takes a lot of investment. To put it bluntly, you need money to be able to pay your own expenses, purchase machinery and equipment, cover operational costs, and keep the lights on at the office.
The need for funds is never-ending. A mere lack of money should not come between you and your dream of running a small business. This is why taking an unsecured bank loan might be helpful for your small business. This will allow you to grow as a business owner without worrying about the amount of money you have on hand.
What is an unsecured business loan?
An unsecured business loan is a type of loan. It does not require any collateral to be provided by the borrower to avail of the funds. The lenders do not rely on the borrower’s assets as security. They approve an unsecured loan based on the creditworthiness of the borrower.
Top 7 reasons why taking an unsecured business loan is beneficial for small businesses:
- Easy application process and minimal documentation: The process of acquiring a business loan usually takes a long time. This is because the lender needs to carefully examine each aspect of the application. These are the borrower’s financial status as well as business reports, plans, and more.This is particularly true for secured business loans. The borrower has to provide additional documentation, such as assets and documents. The lender has to evaluate the value of the collateral before deciding what amount should be given. This is a lengthy and time-consuming procedure. The disbursement process for an unsecured business loan is much simpler and faster. It requires only minimal documentation. Primarily, the borrower has to provide scanned copies of his identification proof, address proof, and a cancelled cheque. However, certain loan companies may also require proof of the existence of your business as well as bank statements and other financial documents that are relevant to verifying the authenticity of your business.
- No collateral requirement: As the name suggests, these business loans are “unsecured.” This means that they are not secured by collateral. Unsecured loans provide the borrower with the funds needed without being backed by collateral. There is no requirement to secure the loan with assets like property, vehicles, or other assets. This option is especially advantageous for small businesses that are just starting and do not have a tangible asset to offer as collateral. This is why obtaining an unsecured business loan is easier for small entrepreneurs who have just begun their ventures.
- Flexible tenure: Unsecured business loans in India offer an option for flexible repayment terms. Most often, the loan can be arranged for a shorter time. For most financial institutions, the repayment period is 12 to 36 months. Flexible terms allow business owners to pay off the balance in a shorter time and still have their budget in place. The flexible and shorter time frame will also permit borrowers to maintain a positive cash flow.
- Improves credit score: Unsecured loans usually come with a shorter repayment tenure. This makes it easier for business owners to repay the loan amount. This in turn may help improve their credit scores. An improved credit score can help you get a business loan at lower interest rates in the future.
- Quick fund disbursal: The online application facilitates the processing of any business loan request much easier. If the applicant meets the eligibility criteria as set by the business loan provider, the loan application will be processed more quickly, and the loan amount will be immediately approved. Moreover, no collateral is required to obtain an unsecured business loan. This makes the process quick and hassle-free. The criteria for approval are relatively easy. There is no need for collateral. So a small business owner can get this kind of loan in a matter of minutes.
- Provides working capital: One of the major challenges faced by small businesses is the absence of liquid assets. They require a steady flow of cash to pay for the cost of working capital. The absence of funds to meet day-to-day expenses could put the company at risk. However, the right amount of working capital can help companies meet various needs. These may be debts from creditors, utility bill charges, inventory purchases, and many more. Unsecured business loans can provide an opportunity to help in times when funds are needed immediately.
- No shared ownership: Most small businesses in their early stages choose to take advantage of alternative funding from venture capitalists or angel investors. They do this to start and expand their operations. To avail themselves of funds, business owners have to share ownership rights through profit sharing. However, in the case of an unsecured business loan, the owner does not have to compromise his property or his stake in the company. Any profit that a business owner can earn through a business loan is exclusively for him to benefit from. He does not have to share any of the profits with the lender.
The above-discussed reasons prove that an unsecured business loan is the best option for small businesses to make a fresh start. If you have been thinking about taking out an unsecured business loan to help finance your venture, now might be the perfect time to do so. Explore your options and discover a financial institution that can help you secure the best unsecured business loans with ease.