For doing any activity whether it is business, profession, drawings, etc. for everything, amount/cash is very important. Without cash, you cannot survive in this world. There are many sources, which are providing loans for the person as per their requirement examples are- Bank, Government, Financial Institutions, and Other Private Sectors.
What is Unsecured Business Loan – If there is a person who wants to start their business or want to expand their business, such person can take the financial help from the bank, financial institutions, government as per requirement. To start a business then we can raise the fund through a loan. Normally there are two types of loans.
- Secured Loan
- Unsecured Loan.
Secured Loan- Secured loan is a loan that is secured or protected by the security. In the case of a secured loan, the borrower secures any asset to the lender as collateral for the loan. Such a loan is secured by the asset, it is known as a secured loan.
Unsecured Loan– An unsecured business loan is a loan that is giving without any security. Such a loan is not protected by any security, it is known as an unsecured loan.
If in the case of business, you want to take a loan without providing any security then such loan is treated as Unsecured Business Loan. This is a very good option for funding a business. Normally in the case of business, the business person does not want to provide any asset as security for taking any loan so an unsecured business loan is very useful for the businesses. It is very helpful for the organization for growing fast and to fulfill the business’s financial needs. The unsecured loan consider more simple because-
- No need for any security.
- Very quick availability
- Simple legal processing
- Lower loan processing cost
In the case of an unsecured business loan, the amount of loan is approved by the authority on the basis of your personal profile, on the basis of working of the company, on the basis of business performance, on the basis on a personal guarantee, and on the basis of solvency performance of the organization, etc. To take an unsecured business loan, you need to agree to a UCC lien and you will provide a personal guarantee to the authority. UCC lien is not collateral security it is a claim which is taken by the lender against your business under the Uniform Commercial Code. On the basis of such UCC lien, the lender has the power to seize the assets, security, or property of the organization if there is default is made by the person to make the payment of such loan or interest or both.
When there is any authority provide an unsecured business loan to any person (business), it will require from the business-
- Personal guarantees of the owners – In the case of an unsecured business loan, the lender requires the per personal guarantees of the owners because if the loan is not repaid by the business, the owner of such business will be liable to make the payment of such loan to the lender. The owner will be personally liable to make the payment of such a loan.
- Pledge business assets– Through the UCC lien, the lender obtains the charge on the assets of the business. The UCC lien covers the charge on all the assets of the business example- Debtors, Plant & Machinery, Building, etc. If the business makes any default in the repayment of the loan, the lender will recover the amount of the loan from these assets.
- Pledge personal assets of the owner- Through the personal guarantee, the lender can recover the amount of loan from the personal assets of the owner, if there is any default in the repayment of the loan.
Requirement of Unsecured loan in business
In the case of business there are the following reasons for which there is the requirement of the fund-
- Business Startup
- Business Development
- Business Growth
- Cash Flow Boost
- Assets management
- Payment of Business Expenses
Options to get Unsecured Business Loan
Now we will discuss the options from which we can take the unsecured business loan for a startup without providing any security.
- Business loan for the startup from the Government schemes- For the development of the businesses and for the new startup, the government has certain schemes of business loan to the business with any collateral security. One of the main schemes of the government of business loans is MUDRA. This is a very useful scheme and a business funding option for the person. This scheme is launched in 2015 by the Micro Unit Development and Refinance Agency. The main objective of such a scheme is to provide financial help to business sectors, services sectors, manufacturing sectors, etc. As per this scheme, the business can raise funds up to Rs.10 lac without providing any security as collateral. This scheme is a very useful for the business for growing and developing their business.
- Standup India Scheme- This scheme is launched in 2016 by SIDBI. This scheme is very much helpful for the trading, services, and manufacturing sectors. This scheme provides the financial loan from 10 lakh to 1crore. This scheme is very helpful for the startup, growth, and development of the entity. Under this scheme, the amount of loan is required to repay within the period of 7 years but such period can be extended for the maximum extra period of 18 months.
- Credit Guarantee Scheme– Under this scheme, the financial loan will be available to the service and manufacturing sectors but not available for the educational institution, self -help groups, retails trades, agricultural, etc. Under this scheme, the enterprises can borrow a maximum of 200 lakhs.
- Sustainable Finance Scheme– This scheme is launched by the SIDBI to provide financial help to industries that deal in green energy, renewable energy, technology hardware, and non- renewable energy.
- Business loan for the startup from the Non – Banking Financial Companies- There is an option to take an unsecured business loan for the business is loan from non – banking financial companies. The non – banking financial companies working as a financial institution (not a bank) which provide the loans to the businesses. The non – banking financial companies provide the loans at the a higher interest rate in comparison to the bank.
- Business loan through bank credit facilitation scheme- This scheme is developed by the NSIC (National Small Industries Corporation). This scheme provides the credit facilities to the MSMEs as per their requirements. Under this scheme, the amount of loan is required to repay between 5 to 7 years but in special cases, the time limit can be extended to 11 years. This scheme is very helpful for the MSMEs.
- Business loan for the startup from the Banks- The bank is a very important part of the economy and it has a very important place in the day to day operation of the business in India. In the development and for the growth of any business the bank performs a very important role. The bank is an authority that provides the loan to the business on the basis of the financial performance and on the basis of the financial position of the business, for this, the bank will check financial statements (Balance sheet, Profit & Loss accounts, Notes, etc.). The balance sheet of the organization should be sound. The bank will also check the solvency performance of the organization if it is sound then the bank will provide the loan. When the bank will provide the loan to any business, will consider the following points-
- Age of the business
- Financial Growth of business
- Business Experience of the promoters of the business
- Clients of the business
- Solvency status of the business
- Revenue and expenses of the business etc.
- Small Business Credit Cards– Under this facility, the owner of the business can spend the amount for the business requirement as per the need. This facility is useful for the small and new businesses. It is very easy and cost effective financial method for the small businesses.
Eligible Criteria for the Startup Business Unsecured Loan
The eligible criteria for taking unsecured business loans are given below-
- The applicant should be a citizen of India.
- The age of the applicant should not be less than 21 years and not more than 65 years.
- Personal Credit Score– To apply for an unsecured loan the applicant should have a good credit score. On the basis of credit score, the lender can know about the solvency performance of the applicant, whether the applicant can make the payment of the loan on time or not.
- Business Plan– To apply for the unsecured loan the applicant should have a business plan so that the lender can see the business viability. On the basis of the business plan, the lender can know about the performance of the business, activities of the business, financial projections of the entity, financial performance as well as the financial position of the entity. The business plan of any entity should contain the following components-
- Target Market
- Financial Plan
- Need of Borrowing
- The amount which you required
- Business Model
- Executive Summary
- Product or Service Review
- Competitors Analysis, etc.
Documents for Availing the Unsecured Business Loan
There are the following documents which are required for availing the business loan-
- Bank Statement (Last six months)
- IFSC Code Proof ( Crossed Cheque, Scanned Cheque, Copy of Passbook)
- ID Proof / Identity Proof (Aadhaar Card, Voter ID, Driving License, Passport, PAN Card, etc.)
- Address Proof (Aadhaar Card, Voter ID, Driving License, Passport, Telephone bill, Electricity Bill, etc.)
- Age Proof (Passport, PAN Card)
- Income Proof (Income Tax Return, Salary Slips)
- Signature Proof (Passport, PAN Card)
- Photograph ( Passport Size- 2 Copies)
