Many times, promoter funding is not enough for SMEs to scale the business. In such an instance, it is imperative for the SME to turn to external financing to boost their business prospects. However, banks often view SME lending to be risky due to the limited turnover and small tenure of operations. Thus, they often stipulate unfavorable conditions like a high collateral cover. Owing to the small ticket size of SME finance, unsecured loans to SMEs are perceived as being low-profit avenues by banks. Since SMEs have a limited asset base, the high collateral security requirement is difficult for them to comply with. The entire loan sanction process in traditional banking channels is time-consuming as it involves extensive verification by the banks and valuation of the assets provided as security by a valuer.
In such a scenario, the timely, zero collateral unsecured business loansoffered by fintech lenders are highly attractive to small business units to help propel business growth.
The main feature of unsecured business loansis that it allows SMEs to borrow without a charge or mortgage on the assets. This is a big relief for the business owner, who do have to worry about losing the business asset in the event of a default in EMI repayment. This is becausesmall business is especially prone to vagaries of business cycles and may witness periods of loss or low profits.
The following are the benefits of unsecured business loans India:
- Boosts working capital
Working capital is a must for the smooth functioning of business operations. The daily operations of the business of routine nature depend on working capital funding. Hence cash flow management is crucial for a small business, which lacks considerable cash buffer to meet any sudden cash shortfall. Unsecured business loans to meet the working capital gap can help SMEs meet short term, urgent funds requirements to manage payables, wage payments,and other mandatory expenditure.
- Growth capital
Growth capital a periodic infusion of funds to meet critical business requirements. Business loans play a vital role at this juncture whether it be the entry into newgeographies, new product launch, acquisition of a new office, hiring talent and marketing activities. The business loans can be utilized towards new profit-making business ventures and the revenues earned from the resultant business can be utilized towards loan repayment.
- The absence of collateral:
Fintech lenders extend unsecured business loans to provide financial assistance to a diverse SMEs, such as B2B service providers, manufacturers, traders, or distributors. Hence there is no charge on any of the business assets which are completely protected even in the event of a loan default. This is a big relief to the small business owner who is progressively building the asset base of his small business.
- Freedom of utilization
NBFCs do not mandate specific application of unsecured business loans as long as it is used for business purposes. Further, the loan amount is not restricted by the value of the asset mortgaged as is the case in banks, simply because there is no underlying asset in an unsecured loan.
- Timely financial aid
Fintech companies, by leveraging technology are able to extend unsecured business loans to SMEs with minimum processing time via an online application process or through the mobile application. A small business would prefer a digital processoffered by fintech lenders than a lengthy, time consuming one in case of banks. Further fintech lenders enable all the required business documents to be directly uploaded online.
Fintech companies pass on the cost saving benefit to the borrowers by way of reduced processing costs and nominal documentation charges. Further, there are no hidden charges. Further, all this is achieved in optimum lead time.