Unsecured loans, as the name implies, are loans that are approved without the need for any collateral or mortgage. Unsecured loans are given on the borrower’s creditworthiness and hence, sometimes referred to as personal loans. Such loans are highly preferred by small and medium business owners who don’t have adequate collateral or any other asset to offer a guarantee. Unsecured business loans are based on the borrower’s income and credit history, rather than pledging assets. In such type of loans, lenders don’t have any right to take physical assets if borrowers stop making payments on the same.
Unsecured loans are also known as Signature Loans as they need your signatures on the loan agreement and that is all you have to bring on the table. Borrowers’ promise and signature work as collateral. In this, you promise to repay the loan but don’t give any backup by pledging collateral or physical asset. If you are looking for collateral-free loans for traders, manufacturers, and other business owners, then visit ZipLoan and get a loan of an amount ranging from Rs. 1 lakh to Rs. 5 lakhs. They offer loan tenure of 12 months, 18 months, and 24 months, and borrowers can choose the one as per their requirements.
Eligibility Criteria for Unsecured Loans
In unsecured business loans, borrowers have to satisfy the eligibility norms and conditions to borrow the same. The eligibility conditions are mentioned here.
- Borrowers must have a high credit score to apply for these unsecured loans. A credit score is a numerical representation of the borrower’s ability to repay the loan and reflects his creditworthiness.
- The other condition is to have 2 years of business vintage and last year’s sales to be at least 5 lakhs. Along with this, the previous year’s income tax return must be 1.5 lakhs.
- Also, make sure that you own either a house or business premises to apply for an unsecured business loan from an NBFC.
Types of Unsecured Business Loans
There are three major types of unsecured loans available, and borrowers can choose the one that suits their needs and requirements in the best possible manner.
- Term Loans: A term loan is a type of unsecured loan in which borrowers repay in equal instalments until the loan is paid off at the end of its term.
- Machinery Loans: It is important to bring change in technology so, businesses should keep upgrading their machinery to enhance the quality of goods. This requires a big investment, and business owners go for machinery loans that are a type of unsecured loan.
- Working Capital Loans: To meet everyday expenses, companies take a working capital loan. It helps in the normal flow of the money into the business and meets its regular expenses as well.
How Unsecured Loans Work?
Unsecured small business loans are highly preferred for small and medium business owners who have incredible credit score history. Hence, they don’t want to offer any collateral or mortgage as a guarantee. These are contrary to secured loans in which you back-up your promise of repaying the debt with some physical asset. Needless to mention, unsecured loans are a bit risky for the lenders as all they have in the name of collateral is the borrower’s signature, his creditworthiness, and promise.
If the borrower fails to qualify for the Unsecured Business Loans then:
- He Needs a Co-signer: In some cases where the borrower’s creditworthiness is not satisfying, lenders allow the loan applicant to provide a co-signer who takes the full obligation to fulfil debt if the borrower fails to do so in any case. Remember that the co-signer is 100% responsible for repaying the debt and thus, bring the person who is worthy enough to become your co-signer.
- He should Borrow Less: If your debt to income ratio creates any problem, then prefer to borrow a small amount of loan, as small loans will result in easy and lower monthly payments. Go for the less amount of loan and quickly repay the same in the specific period.
Essential Documents needed for Unsecured Business Loans
If you are looking for borrowing unsecured business loans, then you must need to submit some documents to qualify for the same. These documents are:
- Business or house address proof
- PAN card is required
- Bank statement of the last 9 months is needed to show your creditworthiness to the lender
- Previous two years of Income Tax Return proof is also required
According to the latest report of TransUnion, financial technology firms had accounted for 38% unsecured business loans in the year 2018 as compared to just 5% in the year 2013. There is ample data that suggests that unsecured business loan is growing in the market. If you are looking for the same, then visit ZipLoan and get your loan disbursed in just 3 days.