Steps to avail an unsecured business loan for your business

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Unsecured Business Loans are a form of funding in which the applicant is not required to offer any collateral to the financial institution or NBFC. These loans are granted based on the entrepreneur’s financial data, credit score, and income.

Business Loans enable entrepreneurs to expand their business presence or infuse working capital to run their business operations smoothly without providing any collateral or security to the bank. Since, no collateral is needed, the relative risk for the NBFC or financial institutions remains high, and you might have to pay a higher interest rate.

Read on to learn more about Business Loans and how to apply for an MSME Loan in detail.

What Do We Mean by Unsecured Loans?

Unsecured loans are one of the prominent credit types that do not necessitate collateral. They’re also known as signature loans because they require only a signature if you fulfil the lender’s borrowing prerequisites.

Lenders may charge higher interest rates as they take on more risk when loans are not backed by collateral.

The interest rates are higher because if a borrower stops monthly payments and defaults on an unsecured loan, the lender has no collateral to recover the outstanding debt.

In this case, lenders may choose to bear the financial loss. They can also seek repayment through a court judgment, but they cannot seize a debtor’s resources without first going through the legal process.

Understanding Common Unsecured Loan Types

There are various types of unsecured loans available. The most popular choices are private, credit cards, and student loans. Student loans, as the name implies, are intended to assist in financing the costs of university education. Credit cards can be used for everyday expenses or to cover unexpected expenses until you get your finances back on track.

Types of Unsecured Loans

Below are some prominent types of unsecured loans.

Term Loan

Any loan, protected or unsecured, is granted for a set period and must be reimbursed through EMIs within that time frame.

Overdraft Loan

Overdraft is a loan or credit delegated by the lender that can be used in the amounts the financial institution decides. The interest rate is assessed on the amount used or availed from the designated or the credit limit sanctioned.

Working Capital Loan

Working Capital Loans are available to meet the everyday expenditures of a business and are approved based on the entrepreneur’s ability to repay.

How to Apply for Business Loan?

To apply for a Business Loan, you can research and analyse alternative loan options that meet your needs. To apply for a Business Loan, go to the NBFC or the lender’s homepage you wish to apply for and click ‘Business Loan’.

  • Complete all mandatory details, such as loan balance, employment history, gross annual sales or retention, city of residence, decades in current business, collateral type, and mobile number.
  • Include information such as full name, date of birth, residential PIN code, corporation type, kind of business, PAN card details, industry type, gross yearly profit, bank balance, and any existing EMI.
  • After you’ve submitted all of your information, a bank representative will contact you to finalise the loan process.
  • If your loan request is successful, the approved loan amount will get deposited into your specified bank account within a specified number of working days.

If you are wondering how to apply for an MSME Loan, you must note that you can follow the same process to avail of an unsecured loan in the MSME sector.

Unsecured Loan Interest Rate

Lending institutions and NBFCs offer unsecured Personal Loan at attractive interest rates. However, interest rates will change based on the portfolio of the borrower and business needs.

The interest rate on an unsecured Business Loan is decided based on several things like the financial habits of the borrower, credit rating, repayment capacity, creditworthiness, annual turnover, etc.

The Bottom Line

An unsecured Business Loan can be challenging without a good personal credit score and proof of consistent revenue from your company. If a lender considers an applicant’s profile less creditworthy, loan deals may require collateral or high borrowing costs.

If you are looking for a dependable lender to avail of an unsecured Business Loan, Poonawalla Fincorp can be your perfect partner. For more details, visit https://poonawallafincorp.com.