Generally, getting business loans for the unemployed is challenging since loan providers find it riskier due to unsteady incomes. But good news awaits you as being unemployed no longer means you can’t fulfil your dreams. India boasts of successful entrepreneurs who have started their entrepreneurial journey while out of work.
No matter if you wish to translate your vision into a huge business empire or are planning to use your skills to turn it into a profitable business, there are quite a few opportunities to secure the right funding. From government-backed loans to alternative loan options from banks and Non-Banking Financial Companies (NBFCs), there are quite a few options to explore. This article will explore on how to get a business loan when unemployed. Let’s dive in and learn how to start your entrepreneurial journey without the conventional 9-5!
7 Ways to Get Business Loans for the Unemployed
Following are the ways to get a business loan for unemployed youth:
1. Look for Government Schemes
The union government provides collateral-free loans to promote self-employment among the unemployed. A few examples of such notable schemes are:
Prime Minister’s Rojgar Yojana (PMRY)
The Prime Minister’s Rozgar Yojana scheme provides loans up to ₹2 lakh to educated youth between 18 and 35 without needing any asset as collateral. It aims to provide financing to unemployed young adults.
Pradhan Mantri Mudra Yojana
The Pradhan Mantri Mudra Yojana, launched in 2015, offers personal loans at low interest rates to promote self-employment opportunities among the unemployed. It offers a maximum credit of ₹10 lakhs with easy repayment tenures of up to 7 years.
Agriculture Loans
The Union government’s agricultural loan schemes assist unemployed youths over 22 with financing to become self-employed. The government has tie-ups with several banks and NBFCs to disburse credit for starting ventures in the agriculture sector. If you are keen on farming and allied business avenues, you can avail yourself of this scheme for easy capital access without requiring conventional proof of employment eligibility.
2. Provide Personal Assets as Collateral for Secured Loans
Secured online loans for the unemployed require keeping an asset like real estate property as collateral with the financial institution. You can apply for such loans even without a steady job by pledging your owned assets.
A Loan Against Property (LAP) is another option for you as it allows you to borrow money against your house. After disbursal, the loan amount sanctioned can be used for your personal requirements or business purposes. Thus, pledging your property enables urgent financing even if you are unemployed.
As the loan amount gets issued only against an asset placed as a fallback security, loan sanctioning can happen despite your unemployment. The collateral coverage assures lenders of repayment.
3. Microloans
Some of the community lenders and non-profit organisations offer microloans. These loans are specially curated for people starting new businesses and those with low incomes. The eligibility criteria and repayment clauses for these loans are quite lenient.
4. Community Banks and Credit Unions
Most people don’t realise this, but certain localised and relatively smaller financial institutions offer loans to individuals without a regular income. These institutions, like community banks or credit unions, are known for their flexibility in terms of lending criteria. It will become even more easier for you if you are an entrepreneur with a solid business plan and strong community ties.
5. Crowdfunding
Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet and social media. This means you can leverage your business idea, elaborate on its potential, and raise funds from the public. Of course, you will have to part ways with a certain stake in your in exchange, but it is still a great idea for people with compelling business ideas.
6. Peer-to-Peer Lending (P2P)
Another effective way to raise funds for your small business is Peer-to-Peer (P2P) lending platforms. These platforms do not prioritise your employment and allow you to raise funds from individual private businesses. In most cases, you also get quite lenient lending criteria, especially when you compare them to the terms of conventional banks. This helps make loans more accessible and get the right business idea the right funding.
7. Partner with a Co-Signer
If you are still unable to secure loans for your small business, you always have the last resort of partnering with a co-signer. Your co-signer must have a good credit score along with a steady income, which helps reduce risk for the lender and makes it easier for you to get the loan. But the important catch here is that if you default on your loan, your co-signer will bear the brunt. This makes it very important that you have a proper repayment strategy and a business plan that helps you stick to that strategy.
Final Verdict
A business loan can be a lifeline for those facing unemployment and financial uncertainty. However, it’s important to borrow responsibly, ensuring the loan is used only for essential business needs and is repaid on time.
With the right planning, a business loan can help you navigate tough times and regain financial stability. If you're seeking a reliable solution, Shriram Finance offers competitive interest rates, flexible repayment options, and a hassle-free, paperless loaning process.
FAQs
1. Can unemployed people get business loans?
Yes, it is possible for unemployed people to get business loans, although it can be more challenging. Financial institutions will want to see you have a viable business idea, good credit, and possibly a co-signer or collateral. A strong business plan is key to convincing lenders to approve financing.
2. Can I get a loan without a salary slip?
Most loan providers will require proof of income, but alternatives like bank statements, tax returns, profit/loss statements, or collateral can demonstrate your financial position. Building your credit profile and business plan becomes even more important without recent payroll slips.
3. How can I get a business loan quickly?
Applying online rather than using the traditional method offers more streamlined applications and quick loan decisions. Rates are higher, but traditional banks can approve financing in days/weeks rather than months. These are good short-term financing options.
4. What kinds of business loans are best for the unemployed?
Equipment financing loans, loans against property, credit cards, and government-backed loans often offer more flexibility for unemployed borrowers compared to traditional bank loans.
5. What information do I need to apply for a business loan when unemployed?
You'll likely need a business plan, personal financial statements, personal and business credit reports, collateral details, and details on any co-signers or investors.
6. How can I improve my chances of loan approval if I don't have a job?
Offering collateral, bringing on a co-signer, and clearly presenting your business idea and preparation can help overcome the lack of payroll income.
