unsecured business loan benefits

How Unsecured Business Loans for startup is best funding option


If you are toying with the idea of starting a new business venture but the lack of funds is playing a spoilsport, then it is time to explore business loans. Even after taking a plunge into the world of business, entrepreneurs usually need the funds again since it takes a considerable time to break even. An entrepreneur may need the funds at any point of time: to start a venture, to expand operations, and to meet its working capital requirements. All these financial needs can be met by business loans.

Apart from this, some businesses are cyclical, and it is tough to generate revenue during its lean season while the working capital requirements do not halt such as money required to pay the salaries and for machinery’s upkeep. Some of them even explore the option of running an alternative business during such times. So, there is always a need for funds irrespective of the stage at which the business is running. In the absence of funds, it becomes unfeasible for the businesses to stay afloat.

Today, there is a plethora of options in the market when it comes to assessing funds such as secured business loans, unsecured business loans, finding angel investors or venture capitalists and others. However, angel investors or venture capitalists remain sceptical about the success of a business plan and you need to prove your business acumen or convince them about the New business idea. Such funding requires a lot of patience and comes at the cost of giving control of your business in certain cases. In such a situation, unsecured business loans come to the rescue of businesses.

There are various types of unsecured loans including term business loans, short-term business loans, business line of credit, etc.

Why should you opt for an unsecured business loan?

Let us take you through the benefits of an unsecured loan which can be accessed any time without any hassle.

1.   Quick disbursal

Those who are running a startup may need additional funds to tackle startup costs, hire employees, buy additional inventory, or manage other needs. You may not have enough time to wait for loan processing because of the urgency. In such times, unsecured business loans are a boon for meeting urgent funding for working capital needs. An unsecured loan is business friendly as the processing does not require much time as compared to a secured loan.

The secured loans require collateral or property for the examination of the same to determine its value. It can turn out to be time-consuming, unlike an unsecured business loan where there is no evaluation of collateral. There are checks in terms of credit score, the overall health of the company, monthly sales besides assessing the loan repaying capacity. Such checks do not require much time and hence loans get processed faster.

2.   Online Application Process

Thanks to the emerging fintech sector, credit facilities to businesses have become easier. With the latest technology, applications are filed online where borrowers can upload copies of documents without much hassle. Online applications get processed a lot faster and the loans are usually disbursed within 72 hours or less.

3.   Low Risk

Unsecured business loans are mostly preferred because you don’t have to pledge any asset as security, unlike secured loans. From a borrower’s perspective, unsecured business loans are therefore safer.

Your risk profile remains low because you didn’t put any property as collateral. An unsecured loan is a collateral-free loan that does not require any of your assets to be offered in lien to avail the loan. Also, another reason to opt for such a loan is that small businesses usually don’t have business assets that can be offered against a loan. Most importantly, a collateral-free loan assures you that your assets are secured and devoid of any risk.

4.   Simple eligibility criteria

Most business loan disbursal processes take time because the financial institution will meticulously check every aspect of the application from your financial condition, business reports, plans etc. This process becomes cumbersome and strenuous if you have opted for secured loans. One of the biggest advantages of unsecured loans is that you can easily apply for an unsecured business loan online which comes with a comparatively simpler set of eligibility criteria. The fintech lenders are offering unsecured business loans with a much faster processing and flexible eligibility criterion.

5.   Flexibility in loan repayment

In case of an unsecured business loan, you need not bother much about the repayment because such loans come with flexible repayment options. Most MSME loans can be availed for a period ranging from six months to three years. You can select the tenure as per your comfort and repaying capacity. You have a flexible repayment structure for unsecured loans which can extend up to 36 months. You have the option to repay the loan on a monthly basis depending on your account’s receivables. You can make the repayment based on a daily, weekly, fortnightly or monthly basis, and having the flexibility in loan repayment takes the burden off your shoulders and leaves you with enough scope to focus on your business.

6.   Undefined Usage

Another advantage of an unsecured business loan is that you can utilise the loan amount for any business purpose. Such a loan is similar to a personal loan and can be used for any purpose, unlike a secured business loan which is given for a specific purpose. In case of an unsecured business loan, you can decide upon the utilisation of the money and lender is not supposed to dictate terms.

7.   Flexibility in loan tenor

If you are facing any temporary problem in the business, you may avail a Small business loan with a six-month tenor, and above which may help you resolve the operational issues that may arise in the course of business.

Such a loan usually has a shorter period than traditional loans and interest rates depend on the borrowing period. You can also opt for pre-closure or part payment with nominal charges.

8.   Remains a customized solution for business needs

Such loans are exclusively designed for MSMEs who are trying to establish or expand their business operations. Most benefits include the flexibility on repayment, amount of loan that can be availed apart from flexible tenure.