Business Loan

Is it Really Possible to Get a Business Loan Without Collateral Security?

13 Nov 2019 7 min read
Business Loan: How to Get a Business Loan Without Collateral Security - Afinoz

So you’re planning to expand your business!! You have an out of the box business idea, and you need funds to get the ball rolling.

But by now, you must have understood, it ain’t cheap to swell up a business with limited funds. To grow your business, it requires huge capital, which is not easy to arrange. But facilitating them without putting up collateral, is all one needs to make a mark in scaling up the business to new heights.

Paying out of pocket to get things up and running is not the only option, and here we are going to tell you, you are not out of luck if you are unable to bear all the business costing by yourself. Various financial institutions provide business loans without putting up any collateral as security, often known as Unsecured Business Loans.

What are Unsecured Business Loans?

A business loan availed from any financial institution without putting up any collateral as security is known as Unsecured Business Loan or Business Loan without security.

Every business requires funds to sustain and grow and having enough capital ensures that it runs smoothly. Arranging for funds every time by oneself is not a cakewalk. In such cases, you can plan for going ahead with Unsecured Business Loans which will take care of the regular payment for the staff, purchasing of the new machinery, purchasing of other business assets, etc.

Banks and NBFC’s are your go-to options to approach for the funds, for businesses that do not own any considerable assets to put up any collateral as security. 

Which financial institutions to approach for Business Loans without Security?

Banks---Both Public and Private Sector Bank

Banks understand the various issues in raising a huge sum of capital to fuel the business. Therefore, almost all private and public sector banks provide business loans to consumers without security. Popular banks providing unsecured business loans are SBI Bank Business Loan, Axis Bank, ICICI Bank, HDFC Bank, Yes Bank, Corporation Bank, Punjab National Bank, Bank of Baroda, Syndicate Bank, etc.

Non-Banking Financial Institutions

Financial Institutions like IndiaBulls, IIFL, Bajaj Finserv, Tata Capital, Capital First, etc. are the leading lenders of unsecured business loans to consumers, assisting them to expand their business. Apart from banks and NBFC’s, various other lending institutions are providing short term unsecured business loans to consumers. 

Features of Unsecured Business Loans

  • No Collateral – Unsecured business loans provide the opportunity to the buyer to avail of business loans without providing any collateral as security. It acts as a great relief to the businesses that do not own substantial assets, against which loan can be availed.
  • High Rate of Interest – To lend a business loan without any asset is a risky decision for every financial institution. Hence, the interest rates at which unsecured business loans are granted are always higher than the ones, which are being availed with collateral. Other factors which influence the interest rates of business loan are loan amount, nature of the business, the income of the applicant, etc.  
  • Easy application and disbursal – The procedure to apply for a business loan without collateral have been made convenient to suit the consumers. You will have to submit only a few documents and the loan amount gets disbursed shortly if it meets the eligibility criteria. To make it more convenient, the financial institutions have provided with the facility of online application of business loan.

Eligibility Criteria to Apply for Business Loan 

Although the criteria to apply for business loan differ from lender to lender, mostly the lending institutions consider the following factors before approving an unsecured business loan application.

  • Credit Score – Granting an unsecured loan to an applicant is the most- risky decision for a bank. Therefore, the credit score of the individual is the most important factor which the lenders take into consideration. Lenders determine the creditworthiness and the repaying capability of debts based on the credit scores. A healthy credit score for both will be beneficial in negotiating for a better rate of interest for a business loan.
  • Age of the Applicant – The age criteria for business loans vary from lender to lender. Most lenders prefer applicants between the age range of 21-65 years to grant the business loan.
  • Business Existence – Lenders mostly prefer lending business loans to businesses having stability of minimum 3-5 years and who are capable of repaying it. Lenders find it risky to grant business loans to new start-ups, which are not yet established. 
  • Performance of Business – If the business is not performing well or doesn’t show signs of growth, then it would be difficult for lenders to lend the required sum of amount as the loan amount. Business stability is the next major factor that is taken into consideration while assessing the loan application for a business loan.

Documents required to avail Unsecured Business Loan

  • Identity Proof
  • Address Proof
  • Recent bank statements
  • Tax returns
  • Audited Financials
  • Office Lease agreement
  • Depending on the type of profession, and the organizational setup, additional documents may be required by the lender 

Important points to remember before applying for a business loan

  • You should take the help of a financial expert to understand the terms of the loan agreement if you are unable to comprehend the technical terms mentioned on the loan agreement by yourself. The clauses and conditions mentioned on the agreement are critical to go through, before signing the final deal.
  • Figure out whether the rate of interest at which business loan offered is fixed or floating. This will impact your monthly cash outflow, towards repayment of debt. When you are aware of the details in clear terms, you can plan your expenses and repayment accordingly.
  • Additional charges such as processing fee, tenure, foreclosure charges, and penalty charges also are important points, which should not be overlooked, while availing the loan amount.

Now that you are aware of the procedure of availing the business loan without security, you can download the Afinoz app and shop for the best lender to avail the loan at attractive interest rates. You can apply for the business loan with just a few clicks and submit only a few minimal documents, along with the loan application.

Financial institutions are considerate of the challenges in running a business and facilitate them in easy availability of business loans, without any collateral. SMEs and MSMEs can take the opportunity to augment their business by gaining easy access to business loans. With funds to give your business the required boost, you can give new wings to your dreams and leap to achieve your goals and objectives.