Unsecured Loans Aren’t Really for Everyone—Here’s Why That’s a Problem
In today’s fast-moving financial world, unsecured business loans are often promoted as the perfect solution for growing businesses that don’t want to risk their assets. No collateral, minimal paperwork, and fast approvals — sounds like a dream, right?
But here’s the truth: unsecured loans aren’t really for everyone. And that’s a growing concern, especially for MSMEs and new-age entrepreneurs who are constantly battling financial limitations.
Let’s unpack why this is a problem, who it affects the most, and what better, realistic alternatives exist.
What Are Unsecured Loans?
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Unsecured business loans are financing options provided without asking the borrower for any collateral or asset security. Instead, lenders depend on factors like:
- Personal or business credit score
- Annual turnover
- Bank statement analysis
- GST returns
- Business vintage
While these loans are great for businesses that check all the boxes, the truth is: Most MSMEs don’t.
Why They Aren’t for Everyone?
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1. The Credit Score Bias
Lenders typically expect a credit score of 700+ for collateral-free funding. Even if you have a decent monthly turnover, a lower credit score can get you rejected instantly. This is where most early-stage MSMEs or businesses hit a wall.
2. Short Business History? Sorry.
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Most lenders require at least 2-3 years of operational history. A thriving 1-year-old startup generating lakhs in revenue might still be denied just because of limited financial records.
3. Higher Interest Rates
Unsecured loans are high risk for lenders, which means they come with higher interest rates — typically ranging from 14% to 24% per annum. Many small businesses can’t afford this burden.
4. Strict Revenue Criteria
Banks and financial institutions often expect businesses to show consistent revenues (often above INR 20-30 lakhs annually) with GST returns to back them up. Seasonal businesses or cash-heavy sectors find this difficult to meet.
5. Lack of Digital Presence Hurts Too
In today’s fintech-driven lending space, a business with no UPI collections, weak digital footprint, or inconsistent online records might be flagged as “risky” — no matter how solid its offline operations are.
Who Gets Left Behind?
- Local traders and wholesalers
- Rural or semi-urban entrepreneurs
- New businesses with informal income flows
- Businesses recovering from pandemic hits
- Borrowers who haven’t built their personal credit profile
Ironically, these are the very businesses that need support the most.
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Why This Is a Problem
• Creates a Lending Gap
There’s a wide chasm between what banks offer and what MSMEs actually qualify for. This disconnect slows down economic growth at the grassroots.
• Pushes Borrowers to Informal Lenders
When denied by banks, many businesses turn to private moneylenders or app-based platforms with hidden charges and unethical recovery practices.
• Kills Early-Stage Innovation
A great business idea with a weak credit score often dies in silence due to lack of funding.
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So, What Can Be Done?
- Credit Isn’t Everything
Lenders must move beyond just scores and look at cash flow trends, digital payments, and actual customer volume. - Customized Lending Products
Financing must evolve. Products designed for specific business models, geographies, or sectors will be more inclusive. - Consultancy-Led Approach
Businesses should seek financial advisory partners like NKB Kredit who understand lender behavior, documentation shortcuts, and funding strategies.
A Word from NKB Kredit
At NKB Kredit, we work with small businesses, traders, professionals, and consultants across India to simplify access to funding. Whether you’re eligible for unsecured loans or need help finding a more practical, secured route — we guide you every step of the way.
We don’t promise shortcuts. We deliver strategy.
Still unsure what your business qualifies for? Reach out today and get a transparent eligibility check from experts who speak your language.
Frequently Asked Questions (FAQs)
It’s difficult but not impossible. Some fintech lenders or NBFCs may approve such applications if other parameters like strong monthly revenue or GST filings are in place.
Interest rates usually range between 14% to 24% per annum, depending on business profile, loan tenure, and lender type.
Yes, most lenders require valid business registration, PAN, and sometimes GST number before disbursing any unsecured loan.
Most lenders require at least 12 to 24 months of vintage. However, some alternative lenders may consider new businesses with strong bank statements and digital presence.
Absolutely. Many NBFCs have relaxed criteria compared to traditional banks, and fintech platforms often offer faster processing with fewer formalities.