An unsecured business loan may often be the best bet when one needs to obtain short-term funds. The unique selling proposition of the unsecured business loan is the facility to avail quick finance without the need for collateral. A huge relief for a small business, which is yet to establish itself and build a sufficient, valuable asset base. The absence of this requirement makes unsecured business loans highly accessible to SMEs. With the NBFCs having taken center stage in the lending business, unsecured business finance has now become available to all sizes of business, including a fledgling SME. The fintech companies are leveraging upon cutting edge technologies ranging from the Internet of Things (IoT), cloud computing, big data and artificial intelligence (AI), to name a few. This has enabled quicker loan processing and higher approval rates compared to the traditional banking channels.
We shall now analyze how an unsecured business loan can help an SME grow:
Operating efficiencies
A business derives revenues from its conduct of business operations. The operations involve expenditure towards labor wages, raw materials, and other goods to be used in the manufacture of finished goods. An unsecured business loan enables funding of such expenses that are vital to business operations. The loan can also be allocated towards working capital needs in the event of a delay in realization of receivables or any sudden operating costs that emerge.
Variable loan amount
Essentially an unsecured business loan does not require the backing of any asset as collateral cover. Hence the amount is not restricted by the value of the asset. One can avail unsecured business finance ranging from Rs 1 lakh to Rs 1 crore, according to the business needs.
Protects business profits
Every business is driven by the motive of profit making. To earn profits, along with healthy revenues, one would also have to ensure cost savings. Unsecured business loans help a small business save on finance costs by offering quick finance at attractive interest rates, rescuing SMEs from the clutches of a debt trap in case of a loan from unorganized moneylenders, who charge exorbitant rates. Further, one need not be waiting for loan approval from the banks, which involve a prolonged loan process.
Flexible Payment structuring
Fintech companies extend unsecured business loans with varying options as regards the EMI repayment. Hence one can opt for a fortnightly or monthly basis as per the loan agreements. This results in a dual advantage: Quicker loan sanction as well option to repay loan faster, so as to avail another loan. This would also result in improving the credit score of the business as prompt repayment is a strong indicator of creditworthiness. In case the business owner lands into serious financial difficulties and informs the lenders in advance, most would reschedule the repayment structure to the advantage of the business.
Diverse application
Being short term in nature, the lenders do not impose any restrictive conditions as to the specific application of the loan amount. One can use the unsecured business loans for a variety of business purposes ranging from working capital requirements, business capex needs or marketing investments.
Low-risk Profile
The risk profile is relatively low in unsecured business loans for the borrower as the assets are out of risk in the event of a default. There is no lien on the business assets, which are limited in case of a small business.
The biggest advantage of unsecured business loans is that they can be customized as per SME needs. There is considerable flexibility on repayments, a wide range of loan amount, flexible tenure, zero security cover, and prompt disbursements. All of these make such business loans a popular choice. Further, one can opt to repay the entire amount in a singular bullet installment or easy EMIs as suited to business requirements.
