Financial institutions and Non-Banking Financial Companies (NBFCs) provide unsecured Business Loans to young entrepreneurs without furnishing collateral or security. Lending institutions grant these loans based on the applicant’s financial records, income, credit score, credit history, etc., rather than using their assets as collateral. SME owners can use these loans to expand their business or manage cash flow during challenging times. Let’s look at the different Business Loans young entrepreneurs may avail of without collateral.
Working Capital Loans: Business owners take these unsecured Business Loans to cover their day-to-day business-related expenses. NBFCs like Clix Capital approve them based on the co-applicant’s credit score and repayment capacity and CMR score of the business.
Term Loans: The borrower must repay these loans in EMIs over a fixed repayment period. Loans Under Indian Government Schemes: The Indian government has launched several schemes to encourage the country’s SME sector. These include PM Employment Generation Program, CGTMSE, Mudra Loan, SIDBI’s Loans in 59 minutes, etc. Young entrepreneurs must find out how to get a Business Loan under these schemes and take advantage of these to get funding for their requirements.
Overdraft: Instead of taking out the entire loan amount in one go, the borrower gets a limit up to which they may withdraw. The business owner can use the credit limit according to their requirement and repay with the interest rate applies only to the actual borrowed amount.
Revolving Credit: A revolving loan has a credit limit specifying the maximum loan a business owner can withdraw at a time. The borrowers have the freedom to utilize as much credit limit as they require within a time frame. Moreover, this type of loan does not confine the borrower to rigid EMIs.Merchant Cash Advance: It is a cash advance an SME owner gets based on the credit card sales, dropped in the merchant account. Loan providers determine the Business Loan eligibility based on the business’s monthly volume and credit card swipes. Micro Loans:
These are small-size loans borrowers take to fund their short-term cash requirements. Their loan size is small, and the repayment term is also short compared to other unsecured loan types. Business Credit Card: SME owners use business credit cards to get unsecured Business Loans. The loan amount is the NBFC’s credit line to cover a business’s ongoing working capital needs.
Features of Collateral-Free Business Loans
The most typical characteristics of collateral-free Business Loans are:
- No need to pledge collateral while applying for a loan
- Business Loan eligibility depends on the applicant’s payback history and creditworthiness
- Lending institutions expect the business to be profitable for the last few years with a minimum annual turnover
- The repayment term is flexible, ranging from a few months to years
When it comes to unsecured loans, Clix Capital offers business loans online that can be used for business purposes. These loans require minimum documentation and are disbursed within minutes of approval.
All in all, unsecured business loans are accessible to retailers, manufacturers, traders, private or public companies, partnership firms, and major corporations. Also, these are ideal for small business owners who do not have assets to pledge as security. The application process is straightforward, with quick approval and minimal documentation requirements. The repayment terms are flexible, allowing the borrowers to use a tenure with EMIs suitable to their monthly repayment capacity. Overall, they are extremely beneficial for small or medium-sized firms requiring immediate cash for business needs.