Business loans without collateral are offered to the business owners who cannot offer any collateral to back the loan amount. There are many times when a small business owner wants to avail a loan for his business. But he faces rejection mainly due to his lack of ability to hypothecate an asset as collateral.
A lender asks for collateral to back the business loan. In case the borrower defaults on repaying the loan availed, the hypothecated asset is confiscated by the lender. The lender can sell off the asset to recover losses. So, this lessens the risk on the part of the loan lender. However, not every businessman in India can hypothecate an asset. They either do not have an asset to hypothecate or they do not wish to risk their asset.
And this ultimately leads to their loan application being rejected. To overcome this situation, many financial lending companies have started offering business loans without collateral. These loans are unsecured business loans, i.e. they are not secured by the collateral. So, there is no need for the small business owner to provide any asset.
There are many other benefits as well of availing business loans without collateral in India. Let’s take a look at them in detail:
Processing Time
also read: how can an unsecured business loan be used by small business?
It takes lesser time to avail an unsecured business loan as compared to secured one. The major reason behind this is the collateral. While processing a collateral loan, the lender is required to evaluate the value of the asset. Significantly, the amount of the loan is equal to or less than that of the value of the collateral. So, this takes time.
However, in case of an unsecured business loan, the lender approves the loan amount entirely on the basis of the creditworthiness of the borrower. The CIBIL score of the business owner is checked here. And so, it takes comparatively lesser time to process a loan application and approve or disapprove it.
Online Application
also read: why does the business loan application gets rejected?
Since there is a certain amount of risk involved, the banks usually are not willing to offer collateral-free loans. So, business loans without collateral in India are mainly offered by the NBFCs and online lending companies. With their involvement, there are several benefits offered with the business loans without collateral.
NBFCs offer online business loans without collateral. You can apply for the loan for business without visiting the lender’s office. And with the online loan application, you can save time and spend it on your business. In addition, with the online loan application, you can apply for a loan anytime – early morning, evening, or even at the night as per your convenience.
Documents
also read: the a-z guide to all documents required for a business loan
Small business loans without collateral are offered with minimal documentation. Firstly, there is no need to provide the documents of the asset that you would be hypothecating since this is a collateral-free loan. Secondly, since this type of business loan is mostly offered by the NBFCs, their requirements for documents are very minimal.
The documents mostly offered by them include identity proof, address proof, PAN card, bank statement for the last 12 months, and ITR filed for last 12 months. All these documents can be uploaded online on the website of the lender. That said, most lenders prefer the PDFs of the documents as that makes them process them faster and easier.
Eligibility
also read: what are the factors that affect business loan eligibility?
The eligibility criteria for business loans without collateral are very basic. The very first difference between the eligibility criteria of the secured and unsecured business loans is the collateral. There is no need to have collateral to be eligible for a business loan without security. In addition, the other basic eligibility criteria include:
- The businessman must be between 21 and 60 years of age.
- Minimum ITR in the last year must be INR 1.5 lakhs.
- The bank statement of more than INR 10 lakhs in the previous year.
- The business owner must own either his house or office premise.
All these together make the business loans without collateral the best option for small business owners in India. There are different types of business loans offered under collateral-free loans, such as machinery loan, SME loan, MSME loan, working capital loan, capital loan, flexi loan, and term loan. And the money availed under the loan can be used for business expansion, to buy or upgrade machinery, or to increase working capital.
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