Whether a business is in its initial stages or in the market for several years, it needs funds to sustain operations and instigate expansion. The only difference is that a new business needs funding from the owner’s end, whereas a company with a few years of vintage can manage its finances from its turnover. However, most businesses look for external funding when expanding their operations. Although most traditional business loans are secured and require collateral for backup, an unsecured business loan can help an SME grow faster without putting an asset at risk.
Want to know how a collateral-free loan helps achieve the targets? Read on.
Goals to Achieve with an Unsecured business loan
Here are a few goals that SME owners can easily accomplish with an unsecured business loan:
- Business Expansion
Many SME owners seek outside funding when they need money to expand their venture. Collateral-free business loans help them shift to a bigger workplace or a better location. Financial support from NBFCs helps business owners meet their urgent expansion needs without stressing their budget.
- Cash Flow Management
Many entrepreneurs apply for a business loan to maintain their business operations smoothly, like taxes, inventory purchases, equipment upgrades, rent, transportation, employee wages, travel, etc. If a business lacks funds, it can source funds from a collateral-free business loan and meet its requirements. Further, they can spend the earned profit on repaying the debt.
- Inventory or Equipment Financing
Inventory and equipment requirements arise at any time, which can significantly affect business operations. The right equipment and machinery directly impact the quantity and quality of the products and push up the business. Unsecured business loans are excellent funding options to fulfil the equipment and inventory requirements. Most loan plans have flexible tenures, making it easier for entrepreneurs to repay the loan according to their convenience.
- Grabbing Opportunities
A small business owner should always stay prepared to grab any opportunities. Most businesses find such opportunities in particular seasons or as per customer demands. A lack of funds at the right time may become an obstacle in the growth plan and hold back target achievement. Unsecured business loans keep an entrepreneur ever-ready to grab such opportunities and achieve milestones. The biggest advantage is that owners do not need to risk their belongings by submitting them as collateral.
- Marketing Expenses
Even a high-quality product may only reach its target customers once the company advertises it efficiently. Although implementing an advanced marketing strategy requires a huge expense, it eventually pays off by growing the product demand and reaching more people. In the current era of digitalisation, digital product marketing pays well. However, the company must hire digital marketing experts to get the job done. If the owners lack funds, they can opt for an SME loan to fund the marketing expense and growth.
Reasons Why Unsecured business loans are More Suitable for MSMEs
Although business loans have numerous advantages, one must recognise their security part. Unsecured loans have different terms and conditions from secured ones. The eligibility conditions and credit score requirements are also stricter due to the higher risk involved for the loan providers. While deciding between a secured and an unsecured business loan, look at the reasons why unsecured loans are more suitable for MSMEs:
- Faster Loan Processing and Disbursal: Secured loans have lengthier processing due to collateral verification and documentation formalities. However, unsecured loans save significant time required for collateral value assessment and paperwork. Loan seekers can quickly apply for a business loan online through an easy and quick digital process. With minimal documentation and a brief in-person verification process, the loan amount reaches the borrower’s bank account without hassle.
- Useful in Critical Situations: An unsecured loan is the fastest and most appropriate funding option for businesses during financial emergencies. Consequently, it ensures that the company does not come to a standstill because of a lack of funds. Applicants can borrow a business loan of up to ₹ 50 Lakh with easy eligibility criteria.
- Lifts the Credit Score: Availing of a business loan and repaying its EMIs on time improves the credit score gradually. As the credit score improves, the chances of obtaining more loans in the future also increase. So, business owners with future expansion plans can boost their credit score using an SME loan and stick to the repayment schedule to boost their eligibility.
- Flexibility: Borrowers can obtain business loans and repay them conveniently by opting for a loan term with budget-friendly EMIs. They can borrow as and when a funding requirement arises and repay without facing any struggle.
- No Asset Requirement: Many new business owners do not have sizable assets to pledge as collateral against their loans. They can obtain a loan without substantial assets if they have a decent credit score and sufficient cash flow. For such borrowers, unsecured loans are the more feasible options.
- No Risk to Property: A secured loan might put the collateral asset at risk in the case of prolonged repayment delay or default. Lending institutions can recover their money by foreclosing the asset. However, unsecured business loans do not put any asset at such risk. Flexible repayment terms give customised loan plans to borrowers, increasing their chance of repaying the loan conveniently and reducing the risk of default.
- Competitive Interest Rates: Increasing demand and stiff competition among NBFCs allow borrowers to avail of unsecured business loans at competitive interest rates. Lower interest rates mean more savings and easy debt management for the borrowers.
- No End-Use Restrictions: Most business loan providers do not pose end-use restrictions on unsecured funds’ usage. Borrowers can use it for any business-related purpose and fund expansion according to their plans.
Obtaining financial backup is a complicated aspect of business operations and expansion. However, an unsecured business loan is easy to obtain, and the loan process is painless. Take advantage of minimal documentation and a quick loan approval offered by top lending institutions to get the necessary funds in time and fulfil the SME’s need for urgent funds.