What is an Unsecured Working Capital Loan?
An unsecured working capital implies that no collateral is required to against the loan . For such loans, no security or guarantor is needed to get the funds. However, in comparison to a secured loan, it is highly feasible. The mechanism of a secured loan is based on using business equipment as collateral for a particular loan. Hence, the risk of losing the equipment is apparent in the instance of loan default.
Add to it that banks often undermine the value of physical assets. As a result, either the borrowing limit increases or the equipment is at risk if all of it is used as collateral.
One additional form of collateral used is financial assets such as savings accounts. With such an account, the risk of losing value is inconceivable; however, the risk of losing money is inevitable in case the loan is unpaid.
Note: Using a personal retirement account can endanger future retirement plans with such a loan.
Read on to learn and understand the relevance of unsecured working capital loans among corporations and business enterprises.
Conventionally speaking, all debt instruments need collateral. Usually, the collateral is accessible by the manufacturing industry. Only the service and trading industry and its companies justify the working capital requirement.
It is this service and trading industry that creates intellectual property fixed assets. The requirement for working capital finance by corporations is eminent to create such fixed assets. In relation to that, the need for collateral by a financial institution is apparent.
Unsecured working capital is the best way to arrange a loan for corporations minus any collateral.
Like any other financial process, acquiring an unsecured working capital credit also comprises documentation. It is highly significant because documentation plays a major role in acquiring working capital loans.
Not to mention, the availability of all the essential documentation regulates the duration of the process. Here is a list of the required documents that are imperative to acquire an unsecured working capital loan:
- Address Proofs- such as electricity bill, trade license, ration card, lease agreements, tax invoices, passport, etc.
- Identity documents- include PAN card, Voter ID, Aadhar card, Driving License, Passport, etc.
- Financial documents- include CIBIL, asset count, bank statement, business bank statements, etc.
Advantages of Unsecured Working Capital
Here is the list of the advantages of procuring unsecured working capital loans for companies:
- Several debt instruments are available as per the requirement specific to the business.
- Unsecured working capital comprises a short-term basis of repayment.
- Collateral is not needed for such working capital finance.
- Quicker turnaround time
- A strong and optimistic impact on the business turnover ratio.
- Unsecured working capital loans address the present obligations of the business.
- Identifies the need for future working capital finance.
- Unsecured working capital finance does not include any fixed obligation such as a Term Loan. A user is charged based only on the amount used.
Use of Unsecured Working Capital
An Unsecured working capital credit is a boon for businesses looking to scale up their productivity and profitability. Hence, the use of such a business loan can be relevant for:
- Marketing and Advertising activities
- Meeting short-term expenditures
- Using it as a working line of credit
- Project Bridge Funding
- Growth and expansion
- HR and Payroll
- Day-to-Day financial operations
- Easy access to funds
- Sustainable Funding source
- Tax payment
2 Things You must Know about Unsecured Working Capital Loan
FIXED INTEREST RATES
A fixed interest usually accompanies an unsecured working capital loan. It helps in sustaining a feasible and rational financial plan for businesses. The volatile interest rates that fluctuate regularly are no longer a matter of concern anymore.
However, the interest rates are only expected to rise over time. When the interest rate is locked in, the payment for the entire length of the term can be analyzed easily.
Usually, a working capital loan is designed to last from 6 to 24 months.
FLEXIBLE USE OF FUNDS
One of the key benefits of acquiring unsecured working capital finance for a business is that the funds can be used for anything concerning the enterprise. A such capital loan can be used to ease short-term cash flow problems.
Furthermore, an unsecured capital loan can also be used to invest in a piece of new equipment or technology. Even for growth opportunities, the working capital funds can be used.
Yubi is one of the most robust credit platforms in the world that deploys convenient and rapid unsecured working capital loans in India. At Yubi, the latest technologies are leveraged with the most conventional and modern approaches to help businesses:
- Get easy access to capital at competitive rates
- Point-to-point onboarding
- Make quicker and more intelligent decisions
- Get trouble-free loan disbursement
- Experience advanced customer experience
Step into the world of Yubi, India’s leading digitised corporate lending platform, is the right fit for all kinds of working capital finance requirements for a growing business.