For an MSME, it is a mammoth task to obtain an unsecured working capital loan. They are often subjected to face issues involving collaterals, like the lack of assets to use as a security against loans.
And the challenges concerning credit history, like the vintage of the company being so low that it doesn’t have an established credit history. These challenges make it hard for them to get access to traditional loans.
Under such circumstances, unsecured working capital loan works as the ultimate instrument for all MSMEs. unsecured working capital loan does not require any collateral as a security against the loan. Therefore, acquiring an unsecured working capital loan helps in lower the risk of losing the asset in case of as default payment. Italso helps the borrower to avoid any unwanted financial burden. As the ownership of the asset remains with the owner, the risk of a financial burden doesn’t fall on the borrower.
Demystifying Unsecured Working Capital Loans
In order to get a traditional loan one must have mortgage his/her assets as a security against the loan, which is not the case for an unsecured working capital loan. An unsecured working capital loan does not require any collaterals. All the terms and condition related to the loan amount, the rate of interest or the repayment options are preconceived by taking into consideration various aspects of the business operations like, the business model, book of finance, and past performance records.
Moreover, an MSME loan is a short-term liability that helps an MSME to sustain itself during an urgent requirement. MSME loans are also tailor-made keeping in mind, the business needs of an MSME. Hence, they are best suited for Micro, Small, and Medium Enterprises (MSMEs).
Unlocking Growth for MSMEs
Advantages of Unsecured Working Capital Loans:
- Easily Available Finance: Unsecured Working Capital Loans are collateral-free, and does not require any asset as a security against the loan. So, the lengthy process of asset valuation and verification gets eliminated. Loan processing has become faster and more efficient. This helps the MSMEs to grab opportunities coming their way or fulfill some urgent needs to enable the smooth functioning of the business.
- Safeguard the Assets: A collateral-free loan does not require collateral as a security against the loan. As a result, this helps businesses to safeguard their core assets. And at the same time, it prevents the assets from getting seized in case of loan defaults. It lessens the financial burden on the borrower and allows him to take even more risks.
- Establishes Positive Credit History: Timely payment of unsecured loan EMIs helps create a positive impact on the credit records of an MSME. It also acts as a goodwill that enhances the creditworthiness of the business and at the same time acts as an instrument that helps you secure much more favorable loan terms in the future.
- Tailor-made for MSMEs: MSME Loan is flexible and it enables the MSME to customise the terms and conditions involving repayment policy, loan amount, and the tenure of the loan, as per his/her business preferences. This liberty for MSMEs to customise their loan policy helps to reduce the unnecessary financial burden on the borrower. It also creates a positive flow of cash into the business thereby enhancing the operations of the business.
- Enhancing Business Confidence: Unsecured Working Capital Loan, when obtained by an MSME, enhances the confidence of the business. As a result, the leadership starts taking more strategic decisions involving enhancement plans and investment in new ventures. The increase in confidence in the leadership also influences the workers and boosts their morale.
Considerations for MSMEs
An unsecured working capital loan indeed has multiple benefits associated with it, however, it is important to choose the correct loan program after careful consideration of all the loan options available at the hand of the borrower. Unsecured loans have a comparatively higher interest rate in comparison to traditional loans. Moreover, MSME loans also have a stricter eligibility requirement. So, it is better to compare the loan proposals of different lenders which will help the borrower to choose the best possible deal thereby minimizing the financial burden, which otherwise would not be possible.
Conclusion
To sum it all up, unsecured working capital loans are an instrument that facilitates the MSMEs to attain business growth and welfare. A quick and easy loan helps MSMEs to make use of different opportunities that come their way without putting much effort. A loan also induces a positive flow of cash, and at the same time lays a roadmap for the future. Securing a loan also helps the business gain confidence which is followed by the incorporation of strategic changes by the leadership as well as increasing intent of risk-taking. With careful planning and responsible financial management, unsecured working capital loans can be the stepping stone towards a brighter and more sustainable future for any MSME. #hydnews #khabarlive
