Last Updated on February 15, 2023 by Faiza Murtaza
Unsecured business loans are a type of business funding that is provided without the involvement of any collateral to the NBFC or banks. Unsecured business loans are offered depending on various factors -including credit score, financial documents, income, and others of the applicant. Unsecured business loans for small businesses or startups can be availed while starting a new business or managing the overall business flow without the submission of any security or collateral with the respective bank.
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Loan Amount and Interest Rate on Unsecured Business Loan
The interest rate for unsecured business loans offered by NBFCs or leading banks will typically start from 16 percent per annum. The maximum amount of loan that can be availed by small businesses or startups is around 2 Lakh INR. The interest rates will vary from one bank to another. It will ultimately depend on the overall profile of the applicant as well as the respective business requirements. The interest rates for unsecured business loans will depend on multiple factors -including the financial history of the applicant, credit score or CIBIL, creditworthiness, annual turnover, and repayment capability.
What are the Common Types of Unsecured Business Loans?
- Term Loans: It is the type of loan that can be either unsecured or secured and availed for a particular time duration as well as needs to be repaid through EMIs within the specified time frame.
- Overdraft: It is a type of credit limit or unsecured loan that is allocated by the lender and availed in different parts as specified by the respective financial institution. The interest rate will be charged only on the availed or used amount from the sanctioned or assigned credit limit.
- Working Capital Loan: This type of loan can be availed towards meeting the everyday expenses of any business while being approved depending on the repayment capacity and creditworthiness of the applicant.
- Loans Under Government Schemes: There is a myriad of loan schemes that have been initiated by the Government. Under these loan schemes, small businesses or startups can avail of unsecured business loans at a reduced rate of interest.
- Micro Loans: These types of loans are typically offered by the MFIs or Micro Finance Institutions to come up with the instant cash need of the respective borrower. The loan amount that is provided under this type of loan will usually range between INR 5000 and INR 2 Lakh. It will ultimately depend on the respective business requirements.
Steps to Applying for the Unsecured Business Loans
To apply for unsecured business loans, applicants can go ahead with checking and comparing different loan options to suit specific business requirements. Here are some steps to follow:
- Fill in the important fields -including employment status, desired loan amount, place of residence, turnover or annual gross sales, mobile number, collateral type, and duration in current business.
- Check the box underneath to agree on specific terms & conditions while clicking the option of “Unlock Best Offers.”
- You should go ahead with mentioning the type of company, nature of business, industry type, gross annual profit, existing EMI, bank account, residence PIN code, gender, email address, and date of birth.
- After you have submitted all the details, the representative of the bank will contact you towards proceeding with the loan formalities.
- Once the loan application has been given approval, the desired loan amount will eventually get disbursed into the specific bank account within the specified working days.
Features of Unsecured Business Loans
- Unsecured business loans are provided without any security or collateral
- Typically, banks will require that the particular business has been in operation for at least two years in profit
- Unsecured business loans are provided depending on the overall creditworthiness as well as the repayment history of the applicant.
- The loan’s tenure tends to be flexible and can range between 1 and 5 years
- The amount of the loan can vary between INR 10,000 and INR 1 Crore -depending on the need and size of the business
Obtaining an unsecured business loan for startups from financial institutions can get complicated at times. If you are only starting out and wish to access a streamlined process to get business funding, you can consider alternative funding options like revenue-based financing by Velocity. It is a scalable and flexible funding method for startups with a simple application process.