How do unsecured loans help small businesses grow faster

How do unsecured loans help small businesses grow faster

SMEs, owing to their limited cash pool, have to turn to external financing to boost their business performance. However, traditional lenders often view SME lending to be risky and stipulate unfavorable conditions like a high collateral cover. Further owing to the small ticket size of small business loan, unsecured loans to SMEs are perceived as being low-profit avenues by banks. The high collateral security requirement is difficult for the SMEs to comply with owing to their limited asset base. Further, the loan disbursement process in traditional banking channels is prolonged as it involves detailed due diligence by the banks and valuation of the assets provided as security.

The timely, zero collateral unsecured business loans offered by fintech lenders with competitive interest rates are highly attractive to small business units to help propel business growth.

Such small business loans enable SMEs to borrow without a charge or lien on the assets. Further, the paperless loan application and sanction process with digital records are a big plus to SMEs that can save time and devote the same towards the conduct of business operations. This also enables quick deployment of the business loans for business purpose.

An unsecured business loan is helping small businesses grow their business faster in the following ways:

Healthy working capital

Working capital is the fuel of well-oiled business machinery. It is critical for the running of daily business operations. Hence cash flow management is critical for a small business, which lacks considerable cash buffer to meet any sudden cash shortfall. Unsecured business loans can help SMEs meet short term, urgent funds requirements to manage payables, wage payments, and other mandatory commitments. Small business loans help meet the liquidity crisis from negative cash flow in the short term. The business loans can be allocated towards new business ventures and the revenues earned from the new business opportunities can be utilized towards repayment of loans.

Growth capital

Growth capital is a crucial capital infusion to meet various business milestones of a small business at different points of time. Business loans play a vital role at this juncture whether it be extension of operation across geographies, new product launch, acquisition of a new office, increasing headcount and marketing activities.

Flexibility in terms of utilization

The biggest benefit of unsecured business loan is the freedom to apply the same across business activities. The NBFCs follow a no questions asked policy when it comes to utilization of business loan amount as long as it finds utility in the business.

Timely access to finance

Fintech companies extend unsecured business loans with minimum processing time via an online processor through the mobile application. Business opportunities often emerge suddenly and need to be seized at the right time in order to derive synergies. Therefore, a small business would prefer a paperless process than a lengthy, time consuming one with the need for frequent visits to the lender’s office. Further, all the required business documents such as last 6 months’ bank statements, debt history, tax filings, business invoices, KYC documents, and GST returns can be directly uploaded online.

Attractive interest rates

The interest rates on business loans offered by fintech lenders are competitive and have reasonable flexibility in the repayment structuring. This way the business can completely focus on business activities, rather than negotiating the best terms of availing business loans.

 Fintech companies act more like a business collaborator to small businesses, engaged in trading, manufacturing, rendering services or retail activities. The loan amount is dependent mainly upon the financial strength of the borrower.

By leveraging upon cutting edge technologies, fintech companies are in a position to significantly reduce the processing costs and pass on these benefits to the borrower by way of reduced charges. Further, all this is achieved in optimum lead time. On approval of the business loan, the amount is directly credited to the registered bank account of the loan applicant.

Category Finance