How Unsecured Business Loans Help in Growth of SMEs

Mr Arora always dreamt of scaling up his fashion boutique by renting a bigger shop, adding necessary equipment, and employing more workers to his unit. However, he lacked funds and had no assets to pledge in order to secure some capital from the lender he once approached. Just as he was giving up on his ambitions for growing his small business, he learnt of unsecured loans that are offered without any collateral. He applied for the loan along with the necessary documents and had quick access to the funds required to expand his business. With the profit made, Mr Arora could pay off the loans on time. With the improved credit rating, his business became eligible for more funds from reputed institutions.

Unsecured Business Loans

Small and medium-sized businesses always need funds to expand their market visibility and operations and rely on investors, venture capital firms or SME loans to finance their requirements. With investors and venture capitals, they will have to share a part of the business ownership. With many lenders in the market ready to finance SMEs (Small and Medium Enterprises), availing a business loan has become easy. According to MSME Sector: Achievement Report, MSME sector contributes to 7% of India’s GDP and generates 45% of manufacturing output and 40% exports. With millions of MSMEs in the country, a great majority of them experience hindrances when it comes to procuring finances to fund their growing requirements.

Unsecured business loans are good options for SMEs and they can use these loans to fund their instant capital requirements. These loans are more desirable since there is no requirement to present any asset or property as collateral. These are offered based on the creditworthiness of the business and its repayment capacity. Since there is no collateral involved, lenders consider these high-risk loans and offer them at comparatively higher interest rates.

How Do Unsecured Loans Help in the Growth of SMEs?

Regardless of what type of SME you own, an unsecured loan can help you in the following ways:

• Maintains Operational Flow

When small and medium enterprises just like Mr Arora’s decide to expand their business and take it to the next level – whether it is to expand their premises, fund new projects, launch new products, buy new machinery or inventory, or to scale up and expand their team – funds become necessary. Unsecured loans become an ideal option to avail capital for these requirements. As a result, the business maintains its operational flow, experiences a healthy growth and earns good revenue from new endeavours. The profit can be used to pay up the loan and maintain good cash flow.

• Easy Access to Funds

With many financial institutions going online, it became easier for SMEs to apply for an unsecured loan. Most lenders allow online submission of documents such as financial statements, business tax statements, previous loan statements, KYC documents, etc. This leads to quick processing of loans and faster access to funds.

• Improves Credit Score

Some lenders offer unsecured business loans to businesses despite the latter having a poor credit rating. In such a case, the profitability of the SME will be considered. Since these are short-term loans, they can be paid back faster, thereby increasing your credit rating and facilitating your chances of acquiring high capitals.