Unsecured Business Loans: Why Collateral-Free Lending Matters in 2025

Unsecured loans got a bad name in 2024 but was it justified?

For much of last year, collateral-free lending became the villain of the MSME finance story. Reports of rising NPAs, defaults in the fintech space, and regulatory red flags filled the headlines. Some lenders exited the segment, others tightened their terms, and many MSMEs suddenly found their access to capital blocked not because they lacked potential, but because the system lost confidence.

But let’s take a step back.

India’s MSME sector isn’t careless with credit in fact, it’s the fastest-growing segment. NBFCs’ MSME loan books are projected to cross ₹4.2 lakh crore by FY 25, growing at an estimated 25% annual pace in FY 24–25, compared to ~15% for private banks and ~10% for public sector banks. The demand for fast, flexible capital hasn’t gone away but the way we talk about it has.

Now, in 2025, the narrative is shifting.

We’re seeing a new generation of MSMEs who are better organized, more credit-aware, and focused on scalable growth. At the same time, smarter underwriting models, real-time data, and fintech-NBFC partnerships are enabling unsecured loans to be disbursed faster and more responsibly. Even regulators have acknowledged the role of digital lending in expanding financial inclusion — when done right.

The question is no longer “Are unsecured loans risky?” It’s “Are they being used wisely and are lenders equipping MSMEs to succeed?”

What Went Wrong in 2024?

The caution around unsecured business loans didn’t come from nowhere. By mid-2024, a sharp uptick in defaults in especially among small-ticket digital lenders sparked concern across the ecosystem.

Some key triggers:

• Aggressive lending without proper risk filters
• Borrowers taking multiple loans across platforms
• FinTech’s chasing disbursal volumes over quality
• Limited financial literacy among first-time borrowers

Unsecured loan NPAs among certain digital lenders reportedly touched 4.5–5% to double the industry average. This led to tighter regulations, withdrawal of some lending partnerships, and a wave of headlines casting doubt on the entire unsecured lending space.

But here’s what many missed: these weren’t systemic failures of unsecured loans they were failures of poor underwriting, lack of visibility, and misaligned incentives.

MSMEs in 2025: Smarter, Structured, Credit-Ready

Fast-forward to 2025, and a different picture is emerging. MSMEs today are:

• Investing in better financial documentation
• Registering for formal credit (GEM, GST, Udyam)
• Maintaining digital payment trails
• Seeking credit not just for survival, but for expansion.

In fact, nearly 47% of new MSME loans now go to new-to-credit borrowers, according to the latest SIDBI-CIBIL MSME Pulse Report. This clearly shows that small businesses want formal, transparent, and timely credit — they just don’t always want collateral tied up for it.

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What Does the Data Say?

The RBI reported that serious delinquencies in the unsecured MSME segment fell to 2.2%, down from around 4.5% in 2024. A promising sign of disciplined growth and stronger underwriting.

This suggests that with better credit education, data-backed assessments, and real-time monitoring, unsecured loans can be sustainable and safe for both borrowers and lenders.

Why Collateral-Free is Gaining Ground

Traditionally, small businesses were locked out of mainstream finance due to one key barrier: collateral.

But a shift is happening:

• Digital-first NBFCs are evaluating businesses on cash flow, invoices, and purchase orders
• Embedded finance models allow lending at transaction points (e.g. invoice discounting)
• Government initiatives like Account Aggregator are enabling secure access to financial data
• Speed and flexibility are becoming just as important as interest rates

In today’s fast-moving business environment, waiting 3–4 weeks for a secured loan can mean losing a contract or customer. That’s why MSMEs are increasingly turning to unsecured working capital into short-term, agile, and linked to real cash flow needs.

How CredAble Bridges the Gap Responsibly

At CredAble, we believe unsecured lending is not the problem; irresponsible lending is.

Our approach is different:

• We underwrite MSMEs based on transaction-level data like purchase orders, invoices, and receivables
• We offer Working Capital Demand Loans and Purchase Order (PO) Financing without requiring collateral
• We partner with over 50+ financial institutions and 125+ corporates to ensure capital flows securely
• We support new-to-credit MSMEs through simplified onboarding and structured repayment plans

Our goal is to make capital available when it’s needed most during growth spikes, market expansions, and supplier negotiations.

A Smarter Way Forward

Unsecured loans aren’t going anywhere. In fact, they’re evolving in becoming safer, smarter, and more MSME-centric.

Yes, 2024 exposed flaws in the system. But 2025 is proving that with the right checks, partners, and intent, collateral-free finance can unlock massive value.

So, are unsecured loans worth it in 2025? For MSMEs that are ready to grow and lenders that are ready to support them right absolutely.

Ready to explore smart working capital solutions?

Discover how CredAble’s unsecured lending offerings can help your business scale without the wait or the paperwork.

Think Working Capital… Think CredAble!