What is Unsecured Business Loan - Its Types and Benefits
28 November, 2023
Loans are either secured on unsecured. Secured loans are when you put down a form of security in exchange for a loan. On the other hand, pledging collateral is not necessary for unsecured loans. Unsecured loans can be beneficial for businesses as they require minimal processing and disbursal times. Keep reading further to know more about Unsecured Business Loan and how they can aid your business.
What is an Unsecured Business Loan?
An Unsecured Business Loan is money you borrow from a lender for business purposes. The lender does not require you to pledge security, and you can repay the loan through Equated Monthly Instalments (EMIs). So how do lenders approve loans without any collateral in exchange? Well, they assess your repayment capabilities, i.e., your credit history and income when approving your loan. Eligible borrowers can get an Unsecured Business Loan for new businesses, business expansion, upgrading machinery, funding working capital, revamping the business space, etc. Micro, small and medium enterprises (MSMEs) can benefit from such loans as the chances of them having a property to pledge may be unlikely.
Types of Unsecured Business Loans
There are several credit instruments that do not require collateral. Here are a few common ones:
Term Business Loan: You can get high-value Business Loans without collateral, guarantor or any other security. The term loan comes with up to a four-year repayment tenure. The sum can be used to fulfil your business needs within shorter timeframes.
Overdraft (OD) Facility: OD allows you to borrow sums of money from your lender if you hold a business account such as a Current Account. As a line of credit, you pay interest on the loan amount you have utilised for various business purposes.
Loan on Business Credit Card: If you hold a Business Credit Card, you can become eligible for pre-approved Loans on Credit Cards. Under this facility, the lender pre-approves you for a loan based on your credit card transactions and bill payments. If eligible, you can get the loan amount credited to your bank account within a few minutes to a few hours.
Government-backed financing schemes: The MSME sector has emerged as one of the most crucial economic sectors. To encourage more individuals to pursue their business dreams, the Government of India has rolled out numerous credit schemes such as the Pradhan Mantri MUDRA Yojana (PMMY), Stand-up India, and Credit Guarantee Schemes (CGS), etc.
Consumer Loans: MSMEs can get a buy-now-pay-later scheme to buy equipment for the business space, such as computers, laptops, air conditioning, printers, security systems, etc.
What are the benefits of Unsecured Business Loans?
The obvious benefit of an Unsecured Business Lending is its collateral-free nature. You do not have to worry about putting down security to get funds. Here are some other benefits you can get out of an Unsecured Business Loan.
Faster processing times: Without collateral, the only factors that the lender needs to assess are your credit score and business profitability. The documentation process, too, is at a minimum. Therefore, lenders process your loan within shorter timeframes. You can also enjoy faster disbursal once your Business Loan is approved.
Affordable EMIs: With good repayment capabilities, you can negotiate preferential interest rates. That means, you can bring down your overall loan cost. Also, your monthly debt repayment does not bite a major chunk of your income.
Flexible repayment terms: Based on your creditworthiness, the lender can offer your repayment tenures that can last for five to seven years. You can opt for longer tenures for a lower EMI or contrariwise.
HDFC Bank recognises the challenges entrepreneurs face while acquiring capital. Thus, HDFC Bank has created MyBusiness, a one-stop solution that gives you easy access to loans, digital solutions and provides you with the essential knowledge you need to run your business. With HDFC Bank MyBusiness, you can scale up, expand your operations, and nurture your business.
To learn more about the various products and services at HDFC Bank that can benefit your enterprise, you can check out the MyBusiness page.
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. HDFC Bank recognises the challenges entrepreneurs face while acquiring capital. Thus, HDFC Bank has created MyBusiness, a one-stop solution that gives you easy access to loans, digital solutions and provides you with the essential knowledge you need to run your business. With HDFC Bank MyBusiness, you can scale up, expand your operations, and nurture your business. Unsecured Loan at the sole discretion of HDFC Bank Limited. Loan disbursal is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.
