An unsecured business loan is the best business loan for an SME in case of short-term funds. A special feature of the best business loans is the ability to avail quick finance without the need of collateral cover. This is highly advantageous for a small business, which is yet to build a scale of business operations and build a valuable asset base. The absence of this collateral requirement makes unsecured business loans easily accessible and attractive to SMEs. With the NBFCs beginning to gain popularity in the lending space in India, due to their favorable lending conditions, unsecured business finance has now become highly democratized. The fintech companies are making use of cutting edge technologies ranging from the Internet of Things (IoT), cloud computing, big data and artificial intelligence (AI) to enable quicker loan processing and higher approval rates compared to the traditional banking channels.
We shall now analyze why an unsecured business loan is the best choice for SMEs in India:
Every business depends on business operations to earn revenues. The smooth functioning of operations involves expenditure towards labor wages, raw materials purchase, payments to suppliers and other routine expense. A business loan facilitates the funding of such expenses in case of a sudden liquidity shortfall. The loan can also be allocated towards working capital needs in the event of a delay in realization of receivables or the emergence of any sudden operating costs.
Absence of collateral
The biggest plus of an unsecured business loan is that it does not require the pledge of any asset as collateral cover. The risk of losing assets is covered for the borrower since the assets are protected even in the event of a default. There is no lien on the business assets. As it is the asset base is limited for a small business. Additionally, the loan amount in case of an unsecured loan is not restricted by the value of the asset. One can avail business finance ranging from Rs 1 lakh to Rs 1 crore, according to the business needs.
Boosts bottom-line margins
Every business is driven by the motive of profit making. The EMI repayment for business loans is paid from the profits. The fintech lenders are able to pass on the cost savings from the use of technology to the borrower. Thus, this reduced the interest and financing costs for the SME. This improves profit margins.
Flexible structuring of payment schedule
Fintech companies extend business loans with flexible options as regards the EMI repayment. Hence one can opt for the fortnightly or monthly basis as per the loan agreements. This has enabled quicker loan grant as well option to repay loan faster, so as to avail another loan or an add on loan at attractive interest rates. Fintech lenders would be willing to extend lower interest rates to repeat customers. This would also result in improving the credit standing of the business as prompt repayment is a strong indicator of creditworthiness.
The fintech lenders do not impose any restrictive conditions as to the specific application of the loan amount. Neither do the lenders minutely oversee the loan utilization. One can use business loans for a variety of business purposes ranging from working capital requirements, business capex needs or any other urgent business activity.