The Pros and Cons of A Business Loan Without Collateral

Business credits are one of the most convenient ways for firms and organisations to raise funds quickly to meet their financial needs. These loans are unsecured, which means that one can avail the same without mortgaging any asset. 

Business loan without collateral can be used towards meeting overhead costs, purchase of inventory, expansion, and growth of a business, to increase cash flow, and the likes. In addition to that, individuals can also opt for customised business credits as per their needs. For instance, a seasonal business can opt for a working capital loan during the offseason to avoid cash crunch and continue with regular production.

Pros of a business loan without collateral

The pros of availing a business loan without collateral are as follows – 

1. Fast processing and approval

Owing to the unsecured nature of business loans, lending institutions are not required to assess the value of an asset to decide the loan amount. As a result, the loan application is processed and sanctioned usually within a day compared to secured loans.

2. Simple eligibility parameters

The eligibility parameters for business loans are nominal, which enables more number of individuals to qualify for this credit and meet their business funding requirement. The essential criteria that each applicant must meet include age within 25 – 55 years, clean repayment history, CIBIL score of 750 and above, a business vintage of 3 years, etc.

3. Nominal documentation 

In case of business credits without collateral, lending institutions ask for minimal documentation. Some of the documents required for a business loan are as follows – 

  1. Documents such as PAN, Aadhaar, Voter ID card, electricity bill, certificate of trade license, lease agreement, or any other officially valid documents for identity and address proof.
  2. Financial documents such as income tax returns, profit and loss statements, balance sheets, etc.
  3. Documents for proof of business ownership such as income tax returns, Registration certificate, partnership agreement, or any other document that serve as proof of ownership.

4. Additional benefits

While applying for small business loans, borrowers can also avail of additional benefits such as the Flexi Loan facility. This facility enables individuals to withdraw multiple times from a pre-sanctioned limit. Furthermore, borrowers also pay interest only on the amount withdrawn and not on the sanctioned funds.

Some lending institutions such as Bajaj Finserv provide pre-approved offers as well to applicants for simplified and hassle-free loan processing. These offers can be availed on a host of credit products such as personal loans, credit cards, business loans, and the like. Individuals can check their pre-approved offers only by entering only a few details like their name and contact information.

5. Online application 

Borrowers can also avail of a business loan online by following a few simple steps. However, one should go through the checklist for a business loan application before proceeding – 

  1. Carry out comprehensive research on features and benefits offered on business loans by financial institutions.
  2. Select a suitable lending institution and visit the business loan section on its official website.
  3. Go through the qualifying parameters specified by the lending institution. It is a crucial step since the lender may reject the business loan application of a borrower if he or she does not meet the eligibility conditions.

Cons of a business loan without collateral

Borrowers should bear in mind that business loans come with a slightly higher interest rate compared to secured loans. Consequently, borrowers should avoid any defaults or late payment of loan EMIs as it may lead to an unnecessary debt burden. While EMIs on small business loans are easily manageable, a cautious financial planning always helps with timely EMI payment.

Furthermore, late repayments will also leave a negative impact on business credit history which may prevent them from qualifying for credit in future. 

To this end, borrowers can use a business loan EMI calculator to determine the loan value beforehand based on loan tenure and interest rates. It will enable borrowers to opt for an affordable business loan option that will meet their financial plan.

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