Types of Unsecured Loans for Businesses
There are quite a few prominent types of unsecured debt financing solutions for businesses in India that can be availed with minimal documentation & at convenient interest rates.
- Term Loans: The most common type of unsecured business loans, term loans, offer hassle-free financing and must be repaid within a particular repayment term.
- Working Capital Loans: Used to maintain liquidity and meet day-to-day expenses & overhead, businesses with a good credit score and strong repayment capabilities can easily avail of a working capital loan.
- Overdraft: Businesses can overdraft their bank account if the bank allows so. Interest rates are only charged on the extra amount above the sanctioned limit.
- Loans under Government Schemes: The Government of India has introduced several SME loan schemes to spur startup development and the country’s economy. These government loan schemes are mostly unsecured business loans with coverage provided by the government agencies such as the CGTMSE. Popular schemes include Stand-up India, Start-up India, PSB Loans in 59 minutes, etc.
- Merchant Cash Advance: Some lenders offer cash advances based on a business sales turnover or monthly volume.
- Micro Loans: Micro-financing institutions offer unsecured loans at attractive interest rates to meet urgent business requirements. Amounts range from as low as Rs. 5000 to up to Rs. 2 lakhs as necessary.
- Business Credit Cards: These are credit cards that businesses can use to avail small loan amounts to maintain business cash flow and working capital requirements.
- Applicant must be between 17 and 65 years of age.
- Their credit score should be above 750.
- The business must operate from its current location for at least 1 year.
- It must be turning a profit for a minimum of one year.
- Applicant must have a regular source of income.
- Applicant’s financial documents MUST include the last six months’ bank statement.
Unsecured Business Loan Interest Rates And Charges
Following are the interest rates of unsecured business loans levied by significant banks & NBFCs across India.
- State Bank of India: 11.20% to 16.3 %
- HDFC Bank: 10.00% – 22.50% p.a.
- FlexiLoans:1% per month onwards
- ZipLoan: 1% – 1.5% per month
- Axis Bank: 14.25% – 18.50% p.a.
- IDFC First Bank: 14.50% onwards
- Kotak Mahindra Bank: 16% – 19.99%
- Fullerton Finance: 17% – 21%
- Bajaj Finserv: 17% p.a. onwards
- RBL Bank: 17.50% – 25% p.a.
- ICICI Bank: 17% onwards
- Indifi Finance: 1.5% per month onwards
- Lendingkart Finance: 1.5% – 2% per month
- Tata Capital Finance: 19% p.a. onwards
- NeoGrowth Finance: 19% – 24% p.a.
- Hero FinCorp: Up to 26% p.a.
(Rates are updated as of November 2022)
What is the Loan Tenure or Duration for an Unsecured Business Loan?
Collateral-free business loans are available for a wide variety of flexible tenures. Generally, the period of loan maturity ranges from 12 months to 60 months. Specific lenders even allow repayment periods of up to 96 months based on the loan amount and purpose.
What is the Mode of Repayment?
Most banks and NBFCs offer different repayment modes for collateral-free or small business loans. Three popular modes of repayment are:
- Post-Dated Cheques: Businesses send PDCs to the lender, who has to physically send them to the business’s bank.
- National Automated Clearing House: A web-based solution by the National Payments Corporation of India for high-volume electronic monetary transactions.
- Standing Instruction: If the business has availed of unsecured small business loans or any business loan from the bank in which it has an account, it can give standing instructions to the bank to deduct an EMI at a specific date.
Features & Benefits of Unsecured Business Loans
Different lenders have different eligibility criteria and features associated with their loan schemes. However, certain features are standard across any financial institution that offers collateral-free loan options.
- Zero collateral required
- As loans are unsecured, credit score, credit history, and creditworthiness become major influential factors.
- Businesses must be making a profit for at least two years.
- The loan amount can vary as per business need, size and scope.
- Loan tenures are generally quite flexible.
The key benefits of an unsecured business loan scheme can be summarised as follows.
- Banks and NBFCs are ready to offer substantially high loan amounts of up to Rs. 1 crore to businesses with strong financials, good credit scores, and flawless credit histories.
- The lack of any collateral or security is another immense benefit.
- Minimal documentation, an easy application process, and quick approvals make unsecured loans a great option.
How Unsecured Business Loans Work?
A business applies for a non-secured loan with a lender. After a thorough background check & a close look at business financials, credit history and subsequent approval, the lender offers a specific loan amount, interest rate, tenure, and other information. The application, approval, and loan processing are generally quick. They must have all necessary documents ready with them while applying.
Where to Get Unsecured Business Loans?
Almost all private & public commercial banks, non-banking financial corporations, and even rural regional banks & micro-financing institutions offer unsecured business loan schemes in India. Many have joined hands with the Indian Government and offer convenient loan schemes.
It is best to shortlist multiple lenders who provide loans for small business owners and any type of existing business at personal guarantee but do not require collateral.
What are Unsecured Business Loans Used for?
Businesses can use unsecured loans for:
- Maintaining Working Capital
- Buying Equipment and Machinery
- Growth and Expansion
- Make a Prosperous Investment
- Meeting overhead Expenses
Unsecured Business Loan Application Process
Before applying for an unsecured instant business loan, small businesses should check and compare the different financing options available to them and determine which suits them the best.
To apply, they can either pay a visit to the nearest branch of the lender & have a chat with the relationship manager or apply online.
Step 1: The online and offline application process will require applicants to provide information such as the desired loan amount, employment status, annual turnover of the business, city of residence, years working in the current business, and essential personal details.
Step 2: Necessary documents then need to be presented, which include bank statements, balance sheets, assets & liabilities declarations, GST & ITR filings, business incorporation documents & business vintage documents, establishment certificates,
Personal documents include PAN cards, Aadhar cards, etc.
Step 3: Once everything has been submitted, a bank representative will get in touch, guiding applicants through the rest of the process.
Step 4: And once the loan has been approved, the amount gets disbursed to the designated bank account
Why Choose Yubi for Unsecured Business Loan?
Yubi is India’s leading corporate debt platform that connects businesses of all sizes with different kinds of lenders. Powered by AI, data analytics, and API-backed infrastructure, it offers a unified approach to business financing. You can explore different loan products from varied lenders, apply easily through a seamless point-to-point onboarding process, and monitor everything anytime.
An array of corporate loan options at attractive interest rates and for different business requirements await you at Yubi.
You apply for unsecured loans at banks and NBFCs. You can also choose from different unsecured business loan options at Yubi.
You need a credit score above 750 and showcase consistent business profitability to get non-secured loans.
A bad credit score can make it nearly impossible to get unsecured loans.
Term loans can be unsecured loans. An unsecured term loan has the same features as a term loan but does not require collateral.
There will be consequences. Most unsecured loan schemes require a personal guarantee, and the lender can lay claim to those guarantees or take other legal steps.
The most significant benefit is, without a doubt, the lack of any security or collateral.
A personal guarantee means that the applicant will be held personally liable in case of default.
Yes, you can, and it is better that way, as you may need a substantial credit history to qualify.
The loan amount varies from one lender to another. Maximum amounts can reach up to Rs. 2 crores in some cases.
As there’s no collateral involved, business loan interest rates are higher as the risk factor remains high for an unsecured loan.