Collateral-free business loans are becoming increasingly popular, especially in the aftermath of the pandemic. These unsecured loans, unlike previous ones, provide reasonable rates of interest and flexible repayment alternatives. Let’s look at why it is.
What Exactly is a No-Collateral Business Loan?
A collateral-free business loan is one that is given to a borrower by a bank or a fintech company with no guarantee or commitment. In layman’s terms, it signifies that a company can contact a lender and borrow money from them at a fixed rate of interest without having to put up any security.
A ‘collateral’ is an asset or precious thing that is pledged as security for a loan. The collateral is repossessed after the loan is repaid. And, if the borrower defaults on the loan, the lender keeps the collateral.
The Demand for No-Collateral Lending
We may conclude that traditional banking models are substantially behind when it comes to the changing needs of businesses. Many small and medium-sized enterprises(SMEs) that request for loans are turned down because they do not meet the eligibility requirements.
This has left a gap in the overall experience for companies who need to borrow money from banks. Banks require collateral to vet these enterprises, which some businesses simply cannot pay at the time. It also takes a long time for a loan to be approved. The success of a company can also be determined by the time it takes for a loan to be approved.
Borrowing firms experience a lot of unnecessary tension as a result of this. This is precisely when they turn to other lenders who can give them immediate working money. Small business owners and entrepreneurs are the most likely to require collateral-free business loans.
Many SMEs were wiped out by the pandemic, putting their restoration efforts on hold. But it’s not all doom and gloom. These firms are benefiting from no-collateral business loans to help them get back on track.
Advantages of No-Collateral Business Loans
Collateral-free business loans are especially useful for organisations that don’t have a good credit score and aren’t eligible for standard loans. The following are some of the most significant advantages:
- There is no need for collateral or a third-party guarantee.
- Interest rates that are both attractive and competitive
- Repayment terms and alternatives are flexible.
- Applications are processed quickly and without fuss because the credit decisioning system approves them automatically.
No-Collateral Business Loan Eligibility
In order to get a business loan, it is important to fall under the eligibility criteria. The following are some of the most common business loan eligibility criteria:
- You should be between the ages of 25 and 65.
- For three consecutive financial years, your company must be profitable.
- Your turnover must be on the rise.
- A certified Chartered Accountant should audit your balance sheet.