In India, an unsecured business loan is a working capital financing option provided by banks and non-banking financial companies (NBFCs). This type of loan does not require collateral security or a guarantor and is usually given based on the borrower’s creditworthiness.
Need for Unsecured Business Loans among MSMEs
The Micro, Small and Medium Enterprises (MSME) sector is crucial for any economy’s growth. In fact, these businesses contribute close to 30% of the GDP of India. But despite their significant role in fostering economic development, many such enterprises lack funds to sustain or expand their operations– this is where unsecured business loan for MSME can help them out greatly.
Advantages of Unsecured Business Loans for MSMEs
- Fast Approval: The advent of digital lending platforms has made it possible for entrepreneurs to get loans approved within minutes rather than days as used to be the case with traditional lenders like banks. These FinTech firms use big data analytics during underwriting which eliminates paperwork needed while applying for credit from bricks-and-mortar establishments thereby speeding up processes involved in loan assessments such that borrowers can access funds when they need them most urgently.
- Easy Application Process: Compared with other types of loans available on the market today where one must visit several times before they even start filling forms; and then wait weeks before hearing whether wasn’t approved or not – applying online saves time significantly! With just your smartphone connected to the internet you can apply now; finish later after downloading the required documents and scan them back using the same device so there’s no need to print anything out or sign anywhere either!
- No Collateral Required: One best aspect about these types of financial products tailored towards smaller and medium-sized enterprises (SMEs) – they don’t require security! This means that entrepreneurs do not have to put up their personal or business assets as a guarantee for the borrowed amount. What this does is reduce risk on the part of borrowers who may have limited resources in terms of fixed properties which can be pledged against credit facilities extended by conventional lenders such as banks; thereby making it easier (and cheaper) for more people to access unsecured loans even if they own nothing valuable except skills & ideas.
- Flexible Loan Amounts and Repayment Terms: The lending industry has evolved over time so much so that borrowers now have a wide variety of options when it comes to small ticket-size borrowing from lenders because there are many players operating within this space. For instance, some NBFCs offer short-term unsecured loans ranging from INR 10 lakhs ($13k) all the way up to INR 2 crores ($266k). Similarly, tenure could be as low as three months going up to five years depending upon the nature & purpose behind availing funds etc. Therefore, business owners need not worry about being forced into taking larger sums than required nor settling debts too quickly thereby affecting cash flows negatively.
- Improves Cash Flow Management: Entrepreneurs often face situations where there’s more money going out than coming in which leads them into liquidity traps like failing to pay suppliers on time or missing out on discounts offered by vendors due to delayed payments etc., but fortunately these challenges can easily be mitigated through availing an MSME loan without collateral since those funds will act bridge gap between different inflows receipts allowing management team meet day-to-day expenses smoothly until such organization achieves stability again.
- Competitive Interest Rates: As SMEs continue growing rapidly during the post-pandemic recovery phase which will be characterized by high demand for credit facilities from operators within this space coupled with increased competition among lenders and amplified regulatory oversight aimed at reigning excessive borrowing costs charged by financial institutions; we expect to see more competitive pricing strategies adopted across various loan products offered under category “unsecured” which should ultimately benefit those who qualify them well. Therefore, borrowers can still save lots of money if they find the right lender offering cheap loans thus avoiding expensive sources such as private moneylenders with exorbitant rates charging up to 36% per annum (or more)!
How do I apply for an unsecured business loan for my MSME?
Applying for an unsecured business loan is quick and easy. The following steps outline what you need to do:
- Check your eligibility: Different lenders have different eligibility criteria for their loans. Some may require a minimum monthly turnover while others may look at the credit score or age of the business.
- Prepare your documents: Once you know which lender(s) you want to apply with, gather all the necessary documents required for the loan application process. This usually includes bank statements, income tax returns and KYC documents.
- Fill in the application form: Visit the lender’s website or branch office fill in the application form with all your details and attach the required documents.
- Submit your application: After filling in the form, submit it along with all the required documents to the lender’s representative or upload them on their website as per their instructions.
- Wait for approval and disbursal: Once submitted, the lender will review your application and documentation before approving or rejecting it. If approved, they will then disburse the loan amount into your bank account within a few working days.
- Repaying your loan: Depending on the terms of repayment agreed upon between you and your lender, ensure that you make timely repayments of EMIs towards clearing off this borrowing so as not to adversely affect your credit score and future financing needs.
Provide the Required Documents
Upload financial records, KYC papers, and business details among other things; all documents should be clear and easily readable.
- Wait for Approval: Upon submission of the application forms together with necessary attachments for processing purposes; lenders will take time to verify every single detail provided in those papers, but this can be done much faster thanks to digitalization.
- Get Your Cash: Once authorized, borrowings will directly go into your company’s account where it can be used according to its needs immediately after that.
Conclusion
Unsecured business loan for MSME act as a saviour by enabling them to overcome financial problems which limit their growth potential. These types of advances are favourable among small-scale industries in India considering they have quick processing periods and do not require any form of collateral security besides charging relatively lower interest rates than other sources thereby making them even more attractive options for such enterprises. Even though there is no backing needed still this money can play a vital role towards nation-building through various sectors empowered by MSMEs in India.
