What is secured business loan?
Secured small business loans are one of the easiest way for micro, small and medium enterprises. These loans require valuable assets, such as property or equipment, as collateral to guarantee repayment.
These loans are uniquely structured to meet the specific needs of MSMEs. Unlike regular loans, which mainly rely on your credit history, secured loans from NBFCs also consider the value of the collateral you offer. This collateral value determines your borrowing limit, interest rate, and repayment schedule.
Secured business loan for MSMEs through NBFCs offer several benefits that can be advantageous for these businesses:
- Access to Capital: Small businesses often have varying cashflows and operate on thin margins. This reduces the ability of small businesses to take loans. Secured business loan reduce this default risk and enable small businesses to get quick access to credit.
- Lower Interest Rates: Secured loans generally have lower interest rates than unsecured ones because they are less risky for lenders. This means MSMEs can enjoy lower monthly payments and overall borrowing expenses, making it easier and more cost-effective to secure funds for business growth or daily operations.
- Longer Repayment Period: Secured loans provided by NBFCs frequently come with longer repayment durations, which can be advantageous for MSMEs. This permits businesses to stretch their repayment obligations over an extended timeframe, alleviating financial pressure on their cash flow and offering enhanced flexibility.
- Higher Loan Amounts: The value of the collateral determines the loan amount for secured loans, which means MSMEs can potentially access larger loan amounts compared to unsecured loans. This can be particularly advantageous for businesses with substantial assets that need significant funding for growth or investment.
- Improved Borrowing Opportunities: Secured loans from NBFCs and a successful repayment of the same can help MSMEs build or rebuild their credit profiles. This in turn improves future loan taking capabilities and ensures growth for the business on more favourable terms.
- Diverse Collateral Options: MSMEs can use a variety of assets as collateral for secured loans, including real estate, inventory, equipment, or accounts receivable. This flexibility allows businesses to choose collateral that aligns with their specific needs and assets, maximizing their borrowing capacity.
- Customized Financing Solutions: NBFCs often offer more personalized and flexible financing solutions tailored to the unique needs of MSMEs. This can include customized loan structures, grace periods, and repayment schedules to accommodate the business’s financial situation.
- Quick Loan Disbursal: NBFCs are known for their streamlined loan approval processes, which can result in quicker access to funds for MSMEs. This speed is crucial for businesses with time-sensitive opportunities or urgent financial requirements.
However, MSMEs should be cautious and evaluate their finances, loan terms, and collateral risks before getting these loans. Consulting with financial advisors and NBFC DSAs can provide more insights on what other competitors offer in the market and aid in thoroughly understanding the terms and conditions of the loan.
How to get Quick Secured Business Loan?
Secured business loan through NBFCs often offer a streamlined and efficient application process, making them a quick source of financing for businesses. Here’s an overview of the typical process:
- Initial Inquiry: Express interest through website, phone, or in-person visit.
- Prequalification: Provide basic financial and collateral information.
- Documentation: Once prequalification is completed, the NBFC will request specific documentation. These documents typically include:
* Business financial statements, including balance sheets, income statements, and cash flow statements.
* Personal and business tax returns.
* Business registration and legal documents.
* Collateral documentation, such as property deeds or equipment appraisals.
* Any other relevant business and financial records.
- Collateral Evaluation: Assess collateral’s value and quality.
- Loan Application: Complete a formal application, specifying loan details.
- Credit Check: Credit checks may be conducted.
- Loan Approval: Underwriting team reviews the application and provides a loan offer.
- Acceptance: Review and accept loan terms.
- Collateral Pledge: Pledge collateral.
- Disbursement: Receive funds in the designated account.
- Repayment: Begin making regular payments according to the agreed schedule.
It’s worth noting that the efficiency and speed of the process can vary depending on the NBFC, the complexity of the loan, and the responsiveness of the borrower in providing required documents. Some NBFCs are known for their quick approval and disbursement times, making them an attractive option for businesses in need of swift financing solutions.
Common Types of Secured Business Loan with respective collaterals:
Term Loans: Borrow a set amount, repay with fixed instalments for various purposes.
Equipment Financing: Use equipment as collateral for favourable terms.
Invoice Financing: Use outstanding invoices to access quick funds.
Real Estate Loans: Leverage commercial real estate for property-related needs.
Inventory Loans: Use existing inventory as collateral for cash flow.
Working Capital Loans: Secure short-term cash flow with assets.
Secured Lines of Credit: Access revolving credit against collateral.
The type of secured business loan that is most suitable for a MSME depends on its specific financial needs, the type of collateral available, and its long-term goals. It’s essential for businesses to carefully assess their requirements and the terms and conditions offered by NBFCs to make an informed borrowing decision.
In conclusion, secured business loan through NBFCs offer valuable financial solutions for MSMEs. These loans provide accessible capital, reduced interest rates, longer repayment terms, and diverse collateral options, empowering MSMEs to fuel their growth and navigate financial challenges effectively.
About Red Fort Capital
Red Fort Capital is dedicated to empowering Indian MSMEs (Micro, Small, and Medium Enterprises) on their path to business growth through customized business loans. We understand that securing a business loan in India can pose significant challenges, particularly when factors like a less-than-ideal credit score, a relatively short business history, unclear financial records, or variable cash flow come into play.
As a respected Non-Banking Financial Company (NBFC), we take pride in offering a diverse range of secured business loans, spanning from 1 to 10 Crores. What sets us apart is our remarkable ability to disburse funds fast, in just 7 days. Our financial solutions are meticulously designed to cater to a spectrum of needs, including working capital requirements, equipment and machinery purchases, invoice/bill discounting, and last-mile financing, among others.