Why Collateral-Free Business Loans are Great Options for SMEs?

The increase in the number of institutions offering collateral-free business loans could just be one of the biggest factors to help grow the small and medium scale businesses, and eventually, the Indian economy. Unsecured business loans are collateral-free business loans, i.e. the borrower doesn’t have to put up an asset as collateral against the business loan he wants to take. Most of the banks and other lenders ask these businesses to put up an asset, which can be seized if the business loan is not repaid in time.

Asking for an asset to be put up as a collateral against the loan has been a tradition followed by banks and lenders for decades. However, the lack of assets and other documentation makes it tough for these small business houses to take a business loan. And even if a business manages to offer a collateral asset against the business loan, it is a very big risk as he might lose the asset if he is unable to pay the business loan back. This has been one of the major factors behind the slow growth of the MSMEs in India. The opportunity for them to grow has been very limited.

However, the scenario has changed now with several new non-banking players coming in the scene. Now, a business loan company is okay with offering SME loans without collateral to help these companies grow without worrying about losing any of their assets. The other perks of going for a collateral-free loan are less documentation, less complex processing, easy approval,and instant cash.

Let’s discuss in detail the major advantages that collateral-free business loans offer to the small and medium scale enterprises:

  • No collateral: The first and foremost reason, of course, is that you don’t have to risk any of your assets as a collateral against the business loan. Not every small-scale business has a property to offer as collateral and even if they have, the valuation and other paperwork take a lot of time. For businesses looking for instant funds, it is certainly not an ideal situation and that’s where these NBFCs offering collateral-free business loan act as a blessing to these businesses.
  • Lenient eligibility criteria: The criteria required to be eligible for getting your business loan approved is also not very complex, making it easy for small and medium scale businesses to get financial support and grow their business operations.
  • Documentation: Getting your collateral-free business loan approved doesn’t require much paperwork or documentation. The required documents are very basic and even the verification process is very fast.
  • Online process: Another great thing about collateral-free business loans is that you can submit all your documents online and the entire process can be carried out online. You don’t even have to visit your lender and you can receive your sanctioned business loan amount sitting at your workplace without investing much of your time in the loan process.
  • Instant funds: With collateral-free loans from some of the popular NBFCs, the business loan amount can be received within a working few days of your business loan application getting approved. Hence, it is a perfect solution for those businesses looking for instant funds in order to smoothen their cash flow or to carry out any other business operations. In comparison, the other options like banks take a lot of time, first in the document verification and approval process and then in the disbursement of funds as well.
  • No prepayment penalty: If you have managed to use your business loan wisely i.e. the borrowed money has reaped rewards for you already and you are looking to get rid of the burden of your head by pre-paying off your loan, you don’t have to worry about any penalty charges. In most collateral-free loans, prepayment charges are not welcomed, unlike the other bank loans which charge an extra amount for paying off your loan prematurely.

All these benefits are very helpful for the small and medium scale businesses and provide them with an opportunity to grow and become a big powerhouse in the near future. Gone are the days when taking a business loan was a hefty task. With these NBFCs coming forward with such attractive business loan offers and at such a reasonable rate, SMEs are becoming more and more confident about going for an SME loan and taking a step forward.

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