Unsecured Business Loan – Apply Online & Get Instant Approval of Up to 5 Cr
The predicament of meeting your financial requirements without having any asset to offer as collateral has bothered many. Despite having a financial condition eligible to get a loan, one may be limited by the assets in their pocket.
At the same time, one may need just instant short-term money to rectify cash flow inefficiencies without having to pledge a precious asset. These situations are the forte of Unsecured Business Loans.
What is an Unsecured Business Loan?
An unsecured business loan is a loan taken for business purposes without pledging an asset as collateral. Since the loan is not backed by collateral, the Banks/NBFCs evaluate an individual’s/entity’s financial statements and credit score to determine eligibility for the loan.
Since they are riskier from the point of view of the lender, they come with higher interest rates than that of secured business loans. The same reason also makes the eligibility for such loans stringent with regard to the credit score of a person. These loans may be taken for a short-term (less than one year) or a long-term (more than one year).
Unsecured Business Loan Interest Rates & Other Charges
| Rate of Interest | 15% to 28% p.a.* |
| Processing Fees | Up to 2% plus applicable taxes. |
| Loan Amount | Up to ₹5 Cr |
| Lowest EMI per Month | Starting from ₹2,783* per Lakh for 48 months |
| Loan Tenure | 12 months to 48 months |
| Foreclosure Charges | 4% Charges |
| Stamp Duty | At actuals (as per state) |
Types of Unsecured Business Loans
Any financial instrument that allows a business to borrow money without pledging an asset could be considered an unsecured business loan. Some of the majorly used financial products used for availing these loans include-
1. Working Capital Loan
A working capital loan is taken to meet the operational expenditure requirements of a business. It may be taken to pay the salaries of the staff or buy raw materials. As such, there exists no stipulation on how the working capital loan must be utilised within the business. The tenure of a working capital loan could range from 6 to 48 months. A working capital loan could also be secured, if a business pledges an asset.
2. Overdraft Facility
An overdraft facility is a loan facility available to companies to address their cash flow inefficiencies. A borrower in this case is allotted a permissible loan amount upto which they could borrow within the year. The interest on an overdraft is calculated only on the amount utlised from the borrowing limit and the number of days it was borrowed for, and not the total sanctioned overdraft amount. An overdraft facility must be renewed each year, except in the case of a Drop-line Overdraft.
3. Line of Credit
A Line of Credit is a revolving credit facility. It is similar to an Overdraft and has a borrowing limit sanctioned to a business. A line of credit allows a business to interest only on the amount borrowed as against the sanctioned amount, and is renewed each year. The only difference between an overdraft and Line of Credit is that while an Overdraft Facility allows an entity to address the immediate cash requirements of the business, a Line of Credit is usually taken to meet medium to long-term financial requirements.
4. Term Loans
These are loans taken for a specified tenure. Term loans have a fixed tenure for repayment and an interest rate that is decided upon taking into consideration the credit score and financial condition of the borrower. A term loan could also be a secure business loan if backed by an asset.
Also Read: Demand Loan vs Term Loan: A Quick Comparison
5. Advances (Invoice Discounting)
Unsecured Advances with the obligation to repay in the future can be considered an unsecured business loan. Invoice Discounting or Bill Discounting is an example of an advance. Such advances are given by lenders against outstanding invoices and are a part of supply-chain financing. The lender is repaid once the business receives payment from its client.
Eligibility Criteria for an Unsecured Business Loan
The following criteria may be used by lenders to approve an Unsecured Business Loan-
- Age of Promoters– The promoters must be at least 21 years old but not older than 70 years.
- Credit Score– A good credit score (usually above 750) is preferred.
- Business Vintage– Lenders may prefer lending to businesses that have been in existence for more than 3 years.
- Turnover– The lenders may prefer giving loans to businesses with at least INR 50 lakhs of turnover.
- Healthy Cash flow– A consistent income is required to get an unsecured business loan.
Also Read: Business Loan eligibility criteria in India
Comparison of Business Loan Interest Rates offered by Top Banks/NBFCs
| Bank/ NBFCs | Interest Rate | Tenure | Processing Fee | Apply Now |
|---|---|---|---|---|
| SBI Bank Business Loan | 14% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| IndusInd Bank Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| SMFG Business Loan | 17% – 21% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Bank of Baroda Business Loan | 17% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| HDFC Business Loan | 14% – 18% p.a. | 1-4 years | Up to 2% of loan amount | Apply Now |
| ICICI Bank Business Loan | 16% – 18% p.a. | 1-4 years | Up to 2% of loan amount | Apply Now |
| Axis Bank Business Loan | 15% – 18% p.a. | 1-4 years | Up to 2% of loan amount | Apply Now |
| Standard Chartered Bank Business Loan | 15% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Deutsche Bank Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Kotak Mahindra Bank Business Loan | 15% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| RBL Bank Business Loan | 15% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| IDFC First Bank Business Loan | 15% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Aditya Birla Finance Ltd Business Loan | 17%-18% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Yes Bank Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Tata Capital Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Hero Fincorp Ltd Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| Bajaj Finance Ltd Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| NeoGrowth Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
| U Gro Business Loan | 16% p.a. onwards | 1-4 years | Up to 2% of loan amount | Apply Now |
How do you get an Unsecured Business Loan?
The process to get an Unsecured Business Loan is simpler than that of a Secured Business Loan. The process of getting such loans is as follows-
- First, a business approaches a Bank/NBFC.
- The Bank or NBFC then may ask for the company’s GST documents and other financial details to check the creditworthiness of the borrower.
- The Financial Institution may also check the credit score of the promoters of the business while determining the eligibility for the loan.
- If the Financial Institution deems the business creditworthy, they may sanction a loan with for a specified tenure and at an interest rate based upon the credit history and financial stability of the borrower.
- The loan may entail regular interest payments as EMIs except in the case of an unsecured overdraft facility or a line of credit, wherein the borrower pays as and when they have the capacity to.
Since each bank has different prerequisites for sanctioning an unsecured business loan, it may get tedious for a borrower to approach multiple banks and inquire whether they’re eligible for a loan. Thus, you could register yourself at OneNDF and provide the required details to simply select from the lenders you’re eligible for.
Features of an Unsecured Business Loan
There are various features of Unsecured Business Loans that make it probably the most chosen financial product in the market-
- They often have a faster processing time when compared with secured business loans. The whole process at times may not take more than a few hours.
- Such loans do not require any collateral, thus keeping your assets unhinged.
- Unsecured instruments like Lines of Credit, and Overdraft offer flexibility in repayment.
- Minimal documentation is required since there is no requirement for pledging an asset.
Also Read: What are the Tax Benefits on Business Loan
Documents required for an Unsecured Business Loan
The following documents may be needed to get an Unsecured Business Loan-
- PAN Card, of both the Company and its Directors.
- GST details (Registration Certificate and Returns of the past 12 months).
- KYC- Aadhaar Card/Voter ID.
- Trade License, if required.
- Address Proof- Utility bills, Aadhaar Card, etc.
- Income Proof- Bank Statement of past one year, Income Tax Returns (ITR) of past 3 years, and audited financial statements.
- Establishment Proof- Udyam Registration Certificate.
- Partnership deed (if applicable).
Check Your Business Loan EMI Here.
Difference Between Unsecured Business Loans Vs Secured Business loans
| Basis | Unsecured Business Loans | Secured Business Loans |
| Collateral Required | No, Collateral Required. | Yes, Requires collateral like real estate, equipment, inventory, etc. |
| Approval Process | Faster since no collateral assessment. | Slower due to collateral valuation. |
| Loan Amounts | Reasonable loan amount | High loan amount. |
| Interest Rates | Higher rates due to increased risk. | Lower rates due to secured collateral. |
| Loan/Repayment Tenure | 12 months – 5 years | 5 years – 30 years |
| Risk Level | Higher risk | Lower risk |
| Processing Fee | Low | High |
Should you go for an Unsecured Business Loan?
Business loans, when unsecured, are suitable when a company has a time constraint and requires debt as soon as possible. Since such loans do not require the pledging of an asset, it keeps the borrower insulated from the possible loss of an asset.
While these loans are easy to acquire, they come at a higher interest rate that may put a burden on the finances of a company in the long term. Thus, it is better to go for an unsecured business loan when the requirement is relatively short-term.
The high risk in these loans makes the credit score of an organisation an important parameter to gauge its eligibility for a loan. Thus, one may require a good credit score to get a loan without collateral.
FAQs
Q.1 What is the maximum tenure of an unsecured business loan?
Typically, the maximum tenure or repayment term for an unsecured business loan ranges from 12 months to 48 months. However, this can vary depending on the lender and the specific loan product.
Q.2 What is the maximum loan amount for an unsecured business loan?
The maximum loan amount for an unsecured business loan depends upon the nature of business activities and the financial condition of the enterprise along with its credit score. Usually, banks hesitate to sanction a loan amount of more than INR 50 lakhs if the loan is unsecured.
Q.3 How long does it take to process an unsecured business loan?
The process to get an unsecured business loan is simple and fast if one has all the documents required. At times, it doesn’t take more than a few hours to get the loan sanctioned.
Q.4 Who is eligible for unsecured loans?
To qualify for an unsecured business loan, your business typically needs to be established for 1-2 years, have stellar personal and business credit scores, strong annual revenues, and consistent positive cash flow. Start-ups and businesses with poor credit/finances usually don’t meet the requirements without collateral.
Q.5 What is the interest rate on unsecured business loans?
The interest rate on an unsecured business loan depends upon the financial instrument being used. For example, it may be around 18-30% for an overdraft facility and 15-25% for a working capital loan. The rate of interest also depends upon the nature of the business and its credit score.
Q.6 What is an example of an unsecured loan?
Invoice Discounting is an example of an unsecured loan. The Discounting Institution may give an advance to the borrower against the proof of outstanding account receivables without requiring any collateral.
Q.7 What are the three types of unsecured loans?
Three types of unsecured loans are-
- Woking Capital Loan
- Overdraft Facility
- Invoice Discounting
Business Loan Other Pages
Business Loan by Banks & NBFCs
