Unsecured Business Loans​ in India

What is SME/MSME Business Loan in India?

SME/MSME loans are a business financial assistance offered to micro, small, and medium-sized enterprises. These loans are used for different types of business-related needs like establishing, expanding or funding an enterprise. SME/MSME loans are unsecured and therefore, the eligibility criteria are very demanding in nature. SME/MSME loans are mostly offered to startup owners, small businesses and women entrepreneurs. The loan duration varies from case to case depending on the tenure agreed by both the customer and the lender. As the loans are collateral free, the minimum eligibility requirements are strictly met to reduce the risk for the lender.

Advantages of Open Capital’s Business Loans

1) Loan Amount up to ₹30 Lakh

Eligible SMEs can receive business loans from ₹10,000 to ₹30 Lakh. Our wide loan range increases the likelihood of loan approval and provides the necessary funding for business growth and expansion.

2) Completely Online

The loan application process is 100% online and can be finished in just a few minutes, eliminating the need to visit a branch or complete paperwork. This enables quick loan approvals.

3) Fast Approval & Disbursal

Our online loan processing allows for instant approval and quick disbursal within 2 working days, compared to the 8-10 days required by traditional banks.

4) No Collateral Needed

Open Capital’s unsecured business loans do not require collateral, safeguarding your valuable assets.

5) Competitive Interest Rates

We analyze all the essential financial & banking data to determine the best interest rates for your business, offering the lowest rates available.

6) Extended Loan Tenure

Loan repayment terms range from a minimum of 12 months to a maximum of 60 months, providing extended credit relief for your business.

7) No Hidden Fees

Open Capital business loans come with no hidden costs, with a one-time processing fee of 2-3% based on the loan amount being the only charge.

8) No Pre-Closure Charges

You can pre-close your loan at any time without incurring additional charges or penalties, and the interest rate will be calculated based on the current date and not the remaining loan term.

Types of Business loans in India

1) Term Loans

Term loans offer a one-time lump sum payment to the borrower in return for agreed upon loan terms. These loans are usually intended for established small businesses with strong financial records. The borrower agrees to a repayment schedule with a fixed or adjustable interest rate in return for a set amount of cash. Term loans may require a significant down payment to decrease the payment amount and overall cost of the loan.

Term loans are frequently given to small businesses seeking funding for the purchase of equipment, a new facility for production purposes, or other fixed assets to maintain their operations. Some businesses require a monthly source of funding for their operations and banks offer term loan programs for these companies.

Business owners apply for term loans similarly to any other credit option by approaching their lender and providing financial evidence of their creditworthiness. Approved borrowers receive a lump sum payment and are obligated to make repayments over a set period, typically monthly or quarterly, with a fixed or variable interest rate and a defined maturity date.

2) Working Capital Loan

A working capital loan is a financing solution used to support a business’s daily operations and manage its short-term expenses. It is not meant for long-term investments or buying assets. The loan is used to cover costs such as payroll, rent, and debt payments, making it a type of corporate debt.

The loan is obtained when a company lacks sufficient cash or asset liquidity to handle its daily expenses. Some businesses with seasonal sales may also require this loan during slow periods. Some companies have revenue that fluctuates, such as manufacturers with sales tied to retailers’ demands. Retailers usually have higher sales during the holiday season, leading manufacturers to increase production in the summer months to prepare for the high demand.

When the end of the year arrives, retailers reduce their purchases from manufacturers, causing a decline in manufacturing sales. In such scenarios, the manufacturers may need a working capital loan to support their operations during the slow period. The loan is usually repaid once the busy season begins and the company no longer requires financial support.

3) Line of Credit

A line of credit (LOC) is a type of loan that offers a set limit for borrowing, which can be drawn from as needed. The borrower can withdraw funds as necessary until the limit is reached. When repayments are made, the borrower has the option to borrow again if the line of credit is open.

An LOC is an agreement between a bank or financial institution and a customer, determining the maximum loan amount that the customer is able to borrow. The borrower can utilize funds from the LOC whenever they want, as long as they don’t surpass the predetermined credit limit agreed upon in the agreement.

4) Revenue Based Financing

Revenue-based financing is a way for businesses to raise capital by offering a portion of their revenue to investors in exchange for investment. It is also known as royalty-based financing. In revenue-based financing, investors receive a portion of the business’s income until a pre-agreed amount has been reached. In majority of the cases, this pre-agreed amount is three to five times the original investment.

Revenue-based financing is different from debt financing as there are no fixed payments, interest is not charged, and payments vary based on the business’s revenue. Payments to the investor are directly linked to the business’s performance, as they are based on the level of the company’s income. Royalty payments can fluctuate depending upon the business sales. If sales decrease, the investor’s payment will also decrease. And, if sales increase, the investor’s payment will also increase.