A business loan can truly be a lifesaver for those who have their own business and this is mostly because it provides all the financing that one could ever need for their job. Business loans can be applied for by any small or large business and it could be utilized either to set up one’s business or to upgrade one’s business with the latest tools and equipments to reap even greater benefits. However, most do not even want to consider the option of going for a business loan because they worry about providing a collateral. They choose to deplete their own cash reserves instead and then they do not have enough to take care of their own personal financial needs. However, business loans are unsecured loans and there is no need to mortgage any property or provide a guarantor for the business.
Here is how collateral free business loan works:
- Good credit score: To get business loan without security, one must ensure that they have a good credit score. A good credit score is required to convince the lender that you are good and safe option to lend out to. The credit score is a reflection of how you have been managing your finances until now and hence if you have a credit score of above 700, then it shows that you are serious about your finances. Ensure that there are no overdue bills or unpaid credit card bills since these are the most common things that will end up affecting your credit score. Make sure that all your payments are on time and the rest would be easily taken care of.
- Higher Interest rates: Yes, one thing that one has to be prepared for is to pay slightly higher rates of interest for loan without collateral security. The interest rates of unsecured loans could go up to 22%, depending on the bank or NBFC to which one is applying for the loan. However, although it seems like a bit more at first, considering the host of advantages the business loans come up, this is a small price to pay. Moreover, NBFCs like Bajaj Finserv have really good repayment options and if one opts for the flexi- loan option, then one can easily make repayments as and when they desire. And with the number of things that one can get done with the loan amount to improve one’s business, the slightly higher rates of interest can also comfortably be paid off.
- Low Loan Amount: Compared to secured loans, one could have to settle down for a slightly lower loan amount but it could still get a lot done. After all, the lender will not pay a very high loan amount without any kind of security. However, if you have additional requirement of money, then you can always pay off the first loan and then opt for a second loan. On the other hand, there are many banks and NBFCs like Bajaj Finserv which also has Top- Up loan facilities and you can also enquire whether it is applicable for your kind of business.
- Less Tenure: An unsecured business loans might not be awarded a very high tenure like secured loans but still it can go up to at least 10 to 15 years, depending on the bank or the NBFC you are applying from. This is because the lender might not be sure that whether your business would hold good for such a long term financial commitment. However, the tenure can be extended after a while and if the borrower can come up with a good repayment plan, then it is quite possible that the tenure can also be extended. The right business loan can help you grow your business by leaps and bounds.