Unsecured Business loans: A right option to grow your business

Posted by Digital on August 21st, 2018

Every business/venture starts with an idea. It can be a product, a service, information, or an aggregation; whatever be the function, the root idea always remains to provide the best while growing simultaneously. Normally the business grows as its customer base and its profit grows. This is the case most of the times, but what if you come with a next level idea which will help your business grow exponentially? Or what if you need to just expand your business but you do not have sufficient capital back up?

To help the businesses expand, all the top lenders in the country, banks, and NBFCs, provide business loan facility to the businesses as long as they satisfy the required eligibility criteria. The business loans provided are of two kinds: secured business loan and unsecured business loan. Let us have a look at these two first.

Business loans which have collateral attached to them, i.e. they are backed by an asset are called secured business loans. The collateral attached with the loan provides a recovery option to the lender.

On the other hand, unsecured business loans are not backed by any asset and do not require the borrower to mortgage an asset to avail the loan. The business loan then is provided on the basis of the repayment capacity of the borrower and its creditworthiness.

How is the Unsecured Business Loan Helpful for Business Growth?

A comparison of the unsecured and secured business loans show that the key difference between the two is an asset. In the case of secured loans, before the approval of the application and disbursement of the loan amount, first it has to be sure that the collateral being mortgaged is genuine and worthy of the repayment. To determine the value and finalize the process takes a longer time. Hence, if the capital requirement is an urgent one, secured business loans are definitely not the right financial credit instrument to go for. Unsecured business loans, on the contrary, have lower disbursal time as the lender only needs to verify the repayment capacity of the applicant.

Now let us understand in detail how unsecured business loans are a useful tool for business growth.

•     No Collateral Required

As we now know already that unsecured business loans do not require the applicant to pledge any asset against the loan. If the business has a really good repayment capability but lacks the required assets to pledge, this is the best option for them.

•     Loan Amount Not Limited to Collateral Value

The loan amount that can be availed with a secured business loan is always tied to the value of the asset that is being mortgaged with the loan. This is great for well-settled businesses which have enough assets to mortgage, even if they do not have the repayment capability, but is equally opposite for the small businesses which do not have the assets to use as a collateral but have a proven repayment capability. As such, even new businesses can avail higher loan amounts for their business expansion with an unsecured business loan.

•     Quicker Processing

The processing of loan application for unsecured business loans involves the following broad steps.

1. Receive the completed application form along with all the required documents.
2. Verify the KYC details of the owner(s) of the business.
3. Verify the business-related documents such as physical verification of the office, analysis      of the business bank statements and audited account reports and the previous two ITR        filings of the business.
4. Based on the past records, verify the creditworthiness and the repayment capability of the business.
5. Inform the applicants of their final eligibility, and the attached interest rates, tenures and other important terms and conditions and additional fee and charges.
6. Loan disbursal.

The secured business loans, however, have additional steps involved regarding the verification of the asset and its valuation. The approval of the loan regarding the requested loan amount and tenure will depend on the lender’s valuation of the asset. However, the processing of the unsecured business loans only takes 5 working days.

Unsecured business loans play a major part in the establishment and growth of a business. It’s a fact that long-term secured loans are essential for long-term finance, but short-term unsecured loans can help businesses meet their urgent and important requirements, which can result in their growth. At this juncture, Niyogin Fintech is playing a major role to help SME’s to boost up their business.