CA Naresh Bansal
CEO Of NKB Kredit Solutions PVT. LTD. with more than 25 years of experience.
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What Is Unsecured Loan?
An unsecured loan is a type of loan that is issued and supported only by the borrower’s creditworthiness, rather than by collateral. This means that the lender does not receive any assets or property from the borrower that could be seized in case the borrower defaults on the loan.
Key characteristics of unsecured loans:
- They are provided based on the borrower’s credit score, income, and overall ability to repay – not assets that could act as collateral. This generally makes them riskier for lenders than secured loans.
- Common types of unsecured loans include personal loans, student loans, credit card debt, and medical financing plans. They may come from banks, online lenders, credit unions, or other non-bank financing companies.
- Interest rates tend to be higher than secured loan options since there is a higher risk of nonpayment from the borrower. Rates can vary greatly depending on creditworthiness.
- If the borrower defaults, the lender generally cannot seize assets – they can, however, damage the borrower’s credit score and take other legal action like wage garnishment if permitted by law.
How To Get an Unsecure Loan ?
Here are the key steps to getting an unsecured loan:
- Check your credit score. Since unsecured loans are based on your creditworthiness alone, having a higher score will increase the chances of getting approved and getting better interest rates. Before applying, check your credit reports and FICO or Vantage credit scores.
- Compare loan options. Research different lenders like banks, credit unions, peer-to-peer lending sites, etc. and see what kinds of unsecured loans and terms you qualify for based on factors like your income, credit score, and current debt obligations. Compare interest rates and fees.
- Prepare your loan application paperwork. Many lenders allow you to pre-qualify or apply online for convenience. Be prepared to provide personal information like your SSN, employer name/address, income amount, housing payments, outstanding debts, assets, and other details to substantiate your ability to repay the loan.
- Provide additional documentation if requested. Some lenders may ask for recent pay stubs, tax returns, bank account statements or other paperwork to verify your financial situation before approving an unsecured loan. Provide these promptly.
- Review loan terms and set up payments. Before signing, carefully go through the loan agreement to understand the interest rate, fees, repayment schedule and make sure you agree to all policies and can manage the monthly payments. Then set up automatic payments from your bank account to avoid issues repaying.
- Following these steps increases your chances of getting approved and getting the best rates on personal loans, student loans and other unsecured financing options.
Why do businesses need Unsecure Loan ?
Here are some of the main reasons why businesses may need unsecured loans:
- Working capital – One of the most common reasons is to finance ongoing business operations and have funds available to cover inventory, payroll, and other short-term cash flow needs when revenues may fluctuate.
- Equipment purchases – Businesses may use unsecured loan financing to purchase essential equipment like machinery, vehicles, or technology upgrades without having to tie up valuable assets as collateral. This preserves flexibility.
- Expansion costs – Renovating, expanding locations, or funding other growth-related expenses can be suited for unsecured business loans so owners don’t further leverage real estate or production tools.
- Marketing/hiring – Loans that aren’t tied to collateral can assist efforts like hiring more staff, increasing marketing budgets to drive sales, or launching advertising campaigns. The key is increasing revenue.
- Emergency funds – Having access to financing that doesn’t require lengthy applications or waiting periods can help businesses bridge sudden shortfalls from events like natural disasters or acute slow sales periods.
The common thread is that unsecured business loans can provide vital cash flow at critical junctures for funding, purchases, or marketable projects without putting ownership of key property or operational assets at risk. The tradeoff is higher interest rates.
Why an unsecure loan is so important For business:
Unsecured business loans are important financing options for companies for the following key reasons:
- Preserve Ownership of Assets – With an unsecured loan, businesses can access funding without having to pledge hard assets like property, machinery or equipment as collateral. This helps preserve full ownership and flexibility.
- Expansion and Growth: The funds from unsecured loans allow companies to pursue new opportunities like the expansion into a new product line or renovating to repair storm damage without impacting daily operations or cash flow.
- Smoothen Cash Flow – Unexpected costs or seasonal business fluctuations can be covered in the short term with an unsecured cash injection. This helps maintain smooth business operations.
- Operational Flexibility – There are no asset-related restrictions or requirements attached to unsecured loans compared to other debt options. Companies can use the funds most strategically.
- 5. Build Business Credit – By taking out and responsibly repaying an unsecured loan, companies establish positive repayment history and improve chances of loan and credit line approval in the future.
While the interest rates tend to be higher, the potential business benefits and flexibility of an unsecured loan make them an important financing avenue for many companies to boost growth prospects.
Who offers unsecure loans in India?
Some of the major lenders and institutions that offer unsecured loans for both individuals and businesses in India include:
- Banks: Top nationalized, private, and public sector banks like SBI, ICICI Bank, Axis Bank, HDFC Bank, Yes Bank, etc. offer personal loans, business loans, credit cards, and overdraft facilities without needing collateral.
- NBFCs: Non-banking financial companies like Bajaj Finserv, Fullerton India, Shriram Finance, TATA Capital, and IndusInd Bank provide unsecured loans with flexible eligibility criteria.
- Fintech Lenders: Online lending platforms and apps like MoneyTap, LazyPay, Kissht, FlexiLoans, PaySense and CreditMate use technology to offer quick unsecured loans.
- Peer-to-Peer Lenders: P2P platforms like LenDenClub, Faircent, i2iFunding connect investors willing to provide unsecured loans with creditworthy individuals and businesses seeking loans.
- Microfinance Institutions: MFIs like Satin Creditcare, CreditAccess Grameen and Ujjivan Financial Services offer collateral-free micro loans for low-income households and small business owners.
While eligibility criteria varies across lenders, factors like credit score, income levels, business cash flows, and existing debt commitments are usually considered for approval and determining interest rates on unsecured loans. The availability of diverse lenders makes this a highly accessible financing avenue.
Eligibility Criteria for Unsecure Loan?
- The typical eligibility criteria to qualify for an unsecured loan in India are:
- Age: Generally, the borrower’s minimum age is 21 or 23 years at the time of applying. Some lenders set a maximum age limit of 60 years or less at the time of loan maturity.
- Income/Turnover: The borrower’s net monthly income (for individuals) or yearly revenue (for businesses) should meet the lender’s set minimum. This varies across lenders but is aimed to gauge repayment ability.
- Credit Score: A good credit score of at least 750 but ideally over 800 enhances the chances of unsecured loan approval and disbursal at lower interest rates. A low score under 600 will unlikely qualify.
- Job Stability: Salaried and self-employed individuals should have at least 1-2 years of continued employment in good financial health and growth potential. Longer tenure is desirable.
- Existing Loan Obligations: Total repayment burden including the potential unsecured loan EMI, other loan EMIs, and credit card bills should not exceed 30-50% of one’s net monthly income to be eligible.
- Company Vintage: For businesses, having completed a minimum of 3 years in operations with strong profitability, rising revenues, and cash flow is generally required by lenders.
Meeting the above criteria in terms of one’s creditworthiness, income sufficiency, and healthy leverage levels makes one eligible for an unsecured loan approval from most mainstream lenders in India.
What Are The Pros And Cons Of Unsecured Loans?
Pros Of Unsecured Loans
- No collateral required: No risk of losing your assets if you default.
- Quick disbursal: Faster approval and access to funds compared to secured loans.
- Flexible repayment: Choose loan tenure and EMI structure to suit your budget.
Cons Of Unsecured Loans
- Higher interest rates: Lenders compensate for the higher risk with steeper interest charges.
- Strict eligibility criteria: Good credit score and stable income are generally prerequisites.
- Limited loan amounts: Compared to secured loans, maximum loan amounts are often lower.
Our Process
We assess on upfront basis the funding requirements based on the long term vision of the stakeholders & accordingly funding possibilities are explored with various lenders/ investors through effectively devising underlying risks of borrower’s business & opportunities.
Our foremost approach is to raise funds for business without collateral & purely based on business credentials. The best possible options including MSME promotional schemes are explored after understanding the business & it’s USP.
After appropriate assessment of Business, we are confident to bring on board Nationalised Banks, Private Banks, NBFC & other Financial Institutions for raising the desired funds either as unsecured funds or secured funds or Equity participation in Business.
We assist not only prior to fund raising but also post fund raising compliance to ensure due reporting & surveillance review by financial institutions.
General FAQ
Unsecured loans are loans that are given without needing any asset as collateral or security. Since there is no security attached, unsecured loans generally have higher interest rates than secured loans like home loans or car loans. However, they are easier to obtain as they don’t require any asset documentation.
Some common examples of unsecured loans are:
- Personal loans – These are general purpose loans that can be used for any personal need like medical emergencies, weddings, travel, etc. They are given basis the borrower’s income and credit score.
- Credit card loans – The outstanding amount on your credit card is an unsecured loan given by the issuing bank. If you are unable to pay your credit card bill, you can convert it into an EMIs based loan.
- Payday loans – These are small, short-term unsecured loans which are to be repaid on your next payday. They attract very high interest rates.
- Loans from online lenders – There are many fintech companies and apps which provide quick unsecured loans completely online basis just your income documents and credit score.
The typical eligibility criteria for getting an unsecured loan in India are:
- Age: You should be between 23-55 years old (may differ slightly for some lenders
- Income: You must have a regular income source with a minimum monthly/annual income as required by the lender (usually Rs. 15,000 or more per month). Salaried individuals, working professionals or businessmen can apply.
- Credit history: Good credit history and credit score (usually 750+) will support your loan application.
- Work experience: You must have held your current job for at least 1-2 years. Total work experience requirements may range from 2-5 years.
The standard documents required are:
- Identity proof (Aadhaar card, PAN card)
- Residence proof
- Bank account statements last 6 months
- Salary slips for last 3 months (for salaried) OR ITR + financial statements (for self-employed)
- CIBIL credit report
You may also need to provide business ownership proofs for self-employed individuals, or employment certificate from HR for salaried applicants.
- Maintain a good credit score: Pay your bills on time and keep your credit utilization ratio low.
- Have a stable income: A steady job history and healthy income will increase your eligibility.
- Compare offers from different lenders: Shop around for the best interest rates and terms before selecting a loan.
Get in touch
Regd. Office :
NKB Kredit Solutions (P) Ltd.
WZ – 2351A, Ground Floor,
Raja Park, Delhi – 110034
Contacts
+91 7503211000
+91 9310022903
EMAILS
info@nkbkredit.com
ceo@nkbkredit.com