For small- and medium-sized businesses in India, access to finance for expansion and growth has always been challenging. It was impossible to secure a business loan from institutions, such as banks, without collateral. As for angel investors, they demand a percentage of the profits, causing you to lose the sole ownership of your business.
Unfortunately, many businesses have collapsed because they could not raise money when it was essential to expand. Enterprises that borrowed money from informal lenders paid exorbitant interest rates that considerably ate their revenues.
In this blog, we will discuss why unsecured business loans are now more popular than ever among small businesses. Let’s dive in.
This type of business loan is referred as an “unsecured” loan. You don’t have to put up any collateral in order to get a loan. This option is helpful when a business is only getting off the ground and has no tangible assets to use as collateral.
Unsecured financing is now more accessible to small business owners who are just getting started.
Simple Application Process
Most lenders have made it easier for borrowers to obtain a business loan. It is now feasible to apply for an unsecured business loan without visiting the bank. You can apply for the loan from the lender’s website. Furthermore, the websites are fairly user-friendly and include online recommendations to assist business owners.
Furthermore, these websites provide information on a variety of features and benefits associated with the different business loan options. An online search for business loans might assist a borrower in locating the best option for their business requirements.
Also Read: Crowdfunding Or A Small-Business Loan: What’s Best For Your Company?
Short Loan Duration & Flexible Repayment
Most lending institutions typically grant an unsecured business loan as a form of short-term financing. Typically, the term of an unsecured loan ranges from 12 to 60 months. This allows business owners to take a break from repaying long-term EMIs.
The shorter loan term also makes it easier for borrowers to maintain a good working capital balance. Several business loan providers already offer flexible repayment options.
A few of these flexible repayment alternatives involve making early prepayments, part-payments, or POS-based loan repayment.
Venture capitalists and angel investors are two popular sources of startup funds. However, it is tough to persuade them to invest in any commercial enterprise without a clear plan that draws their attention.
As angel investors, they seek a share of the company’s revenue. The loss of sole ownership of a corporation is typically a result of obtaining funds without committing debt.
As a business owner, you do not give up or share ownership when you seek a loan. The only person who stands to gain financially from a company loan is the one who took out the loan in the first place. The lender is not entitled to any of the business owner’s profits.
Also Read: 5 Best And Fast Small-Business Loans
A few official documents are required for an unsecured business loan application. Only the borrower’s ID, proof of residency, SPDC, and a canceled check are necessary.
Loan providers, on the other hand, may want proof of business registration and bank statement records to validate the history of your company.
Quick Loan Disbursal
The online application makes it simple to apply for a business loan. If the borrower fits all requirements set forth by the business loan provider, the application can be completed quickly, and the loan amount will be approved immediately.
Lower Interest Rates
Numerous institutions provide unsecured business loans, so the market is competitive. This results in highly competitive and affordable interest rates, which greatly benefit the borrower.
The services provided are also professional, and you have a lot of freedom when it comes to repaying unsecured loans.
As a result, the company can expand and sharpen its growth-oriented emphasis. If a company has the potential to expand and turn a profit, it may be granted an unsecured business loan. However, there is always the option of obtaining a loan without pledging any assets as security.
Also Read: Factors That Affect The Eligibility For Small Business Loans
Flexible Use of Funds
Far too many restrictions are put in place when you seek out a business loan from a typical bank. Before approving your loan request, most lenders want to see a detailed business plan.
Whenever you apply for an unsecured business loan, you can use the authorized loan amount for any purpose. In most cases, lenders don’t even inquire about how you plan to utilize the money they lend you.
It is entirely up to you how you intend to utilize the money you receive from a company growth loan, whether you use it to expand your workspace, hire additional employees, purchase new equipment, or conduct R&D.
Working cash is essential for SMEs to maintain a consistent level of revenue that may be considered normal. Small firms can benefit from unrestricted business advances, which can be used to meet essentials, such as managing creditor liabilities, service charges, regular deals, and other similar normal costs.
When a negative cash flow is a concern, private company advances might act as a safety net. As a result, small firms may focus on long-term growth instead of worrying about short-term cash flow.
Also Read: Reasons Indian Businesses Face Rejection for small business loans
In order to ensure the long-term success of your business, you must invest in its growth, expand into new areas, and develop new goods. An unsecured business loan gives you the freedom to take risks and take advantage of any growth possibilities that may present themselves.
A business loan, however, should be weighed against all the benefits and cons to ensure that it coincides with your business objectives. You must also review the requirements for business loans so that you can negotiate with the lenders to get the business loan at a reasonable interest rate from the start.