Navigating the Pros and Cons of Unsecured Business Loans for Small Businesses

Often, maintaining cash flows can be harder for small businesses, because of their small customer base - even a small chunk of customers who delay the payment can significantly shake up the everyday financial planning of a small business.

studio18 May 24, 2023 16:42:04 IST
Navigating the Pros and Cons of Unsecured Business Loans for Small Businesses

As the adage goes, it takes money to make money. No one knows this better than small business owners. Small businesses face the same growth concerns as large businesses do but without their deep pockets. Often, maintaining cash flows can be harder for small businesses, because of their small customer base – even a small chunk of customers who delay the payment can significantly shake up the everyday financial planning of a small business. Moreover, for the same reason, small businesses are also more vulnerable to economic headwinds.

A smooth and steady flow of funding is like an elixir for any business on a growth path. However, the business journey can be arduous, no matter how strong a business idea is, or how much your customers swear by you. Organic growth certainly binds you to steady growth, but at a pace that is much slower than your competition.

This is where a Business Loan can be a game-changer for small businesses. Today, a borrower no longer has to face the lengthy loan process of the bygone days which were marked by delays and uncertainties, not to mention the steep fees and non-transparent charges that are attached to the loan product. In addition, you also don’t need to put collateral to secure a loan. The dynamics of loan products have now changed with the passage of time and new technology available to lenders.

Why Do Unsecured Business Loans Make Sense?

Unlike secured loans that require a borrower to pledge tangible collateral, unsecured loans are granted based on a borrower’s creditworthiness, revenue history, cash flow, and financial stability. This can be especially beneficial for small businesses just starting out and with few assets to offer as collateral. In addition, unsecured loans often have faster approval times than secured loans, making them a good option for businesses that need funds quickly.

The best loan providers are those that make the entire process of application, approval, and disbursal simple and seamless. Poonawalla Fincorp, for instance, prides itself on its strong customer service ethics, which are reflected in its loan application process as well. Not only can a borrower apply online and upload all the documents digitally, but most or none of the applicants will also ever need to step into a branch of Poonawalla Fincorp to follow up on the status of their loan application. The application process is also swift, and the interest rates are among the most competitive in the industry.

The eligibility criteria evaluate the borrower profile– the borrower needs to be between 24 and 65 years old, be an Indian citizen, have a business that is at least 2 years old, and should have an annual turnover of at least ₹6 Lakh. The documentation required for submission is also simple: Company PAN Card or Director/Proprietor PAN Card, Proof of Address (Aadhaar Card/Voter ID Card/Passport), Business Address Proof (Rent Agreement/Utility Bill), and financial documents like bank statements and Income Tax (IT) returns.

Factors to consider:

As with any financial commitment, there are several other factors a borrower must consider before they sign the dotted line with any lender. Things to keep in mind are:

  1. Evaluate the financial situation wisely: As a borrower, can you afford and commit to the Equated Monthly Installments (EMIs)? Is there a possibility to delay taking the loan and build a healthy credit score that will assist you in availing better interest rates on a Business Loan?
  2. Identify the purpose for taking a loan: Ideally, loans should be used wisely to finance short-term projects or to cover temporary working capital gaps. It will be prudent for Businesses to avoid using unsecured Business Loans to fund long-term projects or to cover any ongoing operational expenses.
  3. Have a repayment plan in place: This will help you avoid messy defaults and the credit spiral that results from them.
  4. Research lenders: Not all lenders offer the same terms and conditions for extending unsecured loans. Compare interest rates, fees, and repayment terms to find the most affordable option. Remember, diligent research leads to making intelligent choices.

The Poonawalla Fincorp Advantage

For Poonawalla Fincorp, providing collateral-free loans are a way of helping small businesses grow. As a part of India’s financial ecosystem, Poonawalla Fincorp recognizes the power of small businesses and the integral role they play in powering not just the Indian economy at large, but also in micro aspects like the employment opportunities small businesses generate, the skill-building and enhancement they provide, and the prosperity they generate for their communities.

Keeping the unique needs of small businesses at the center, Poonawalla Fincorp offers Business Loans at competitive interest rates along with other key product benefits. Customers of Poonawalla Fincorp who have availed of the Small Business Loan have benefited in tiding over unplanned emergencies, consolidating debts, meeting planned and unplanned expenses, upgrading and investing in new infrastructure, and undertaking other revenue and growth-generating activities.

With a strong belief in financial prudence, Poonawalla Fincorp encourages borrowers to use the free EMI calculator available on its website to understand the total cost of the loan, make efficient comparisons, choose the right loan tenure, and know the EMIs, thus empowering them to plan their finances better. After all, a well-informed financial decision helps an entire ecosystem, not just the business alone.

Learn more about Poonawalla Fincorp’s collateral-free Business Loans for Micro, Small, and Medium-scale Enterprises here.

This is a partnered post. 

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