In unsecured business loans, you are not required to pledge your assets in the form of collateral. The creditworthiness of the business, its yearly cash flows, and its financial health are some of the parameters based on which the funds are granted by the lenders. Sometimes it may happen that the business owners do not have collateral, or when the existing assets cannot be put on collateral. In this scenario, the businessmen can avail unsecured business loans and have access to new finance. The unsecured business loan interest rates can be low for individuals that have a good credit score.
Is your business eligible for unsecured business loans?
The eligibility criteria can vary for different lenders. Some lenders do not provide loans to start-ups as the risk of non-payment is high here. Businesses that are in the market for a long time are more likely to get unsecured loans, especially if they have a good repute and a high credit score. In India, the borrowers are generally expected to meet the following criteria-
- The borrowing party must be in the same business for at least 3 years
- It should have a good credit score
- The cash flows for the business should be high and incremental
- The funds can be provided to distributors, wholesalers, traders, and B2B service providers, who need them on an urgent basis.
- Professionals such as lawyers, doctors, and architects can also avail of these loans, provided they have a good credit score.
- The borrower should convince the lender that he is capable of making payment on time; since the funds are being provided without any collateral security.
- The sales level should reflect an increasing trend as annual turnover is a major factor to determine the sustainability of the business.
- The borrower should also make a business plan, the cash flow forecasts, and what assets and machinery it owns, to provide for its financial viability and provide assurance to pay on time.
What are all the documents which you will need?
You will be needing the following documents for obtaining unsecured business loans in India-
- The application form
- Proof that your business is registered/licensed
- Audited financial statements
- KYC documents
- Last six month’s bank statements
- List of the directors and their shareholding details
- Details of existing loans
- GST returns of the previous year
How you can enhance your business’s eligibility to get a loan without collateral?
It can be tricky to obtain a loan without collateral. It is valid not only for new businesses but also for those who have been in existence for decades. Since collateral provides assurance to the lender, obtaining a loan without collateral might not fare well for the businesses. The eligibility can be improved through-
- Audited financial statements– Unsecured business loans in India can be obtained with ease when the financial statements of your business are audited by a chartered accountant. For small businesses, it is advised to get their statements audited before applying for an unsecured business loan.
- Formulating a business plan– The business plan must be solid and convincing to the lenders. It must show how your business will make money. You can also attach an estimated cash flow statement for the coming years to convey its financial sustainability to the lender.
- Settling your previous debts– If your business already has several previous debts, it is better to clear them before applying for a loan without collateral. The previous loans increase the likelihood that you will miss out on repayments of EMIs.
What is the process of obtaining an unsecured business loan in India?
The unsecured business loans in India can be procured by following the following steps-
- Locate the website of your preferred lender
- Have a look at the drop-downs and select the unsecured business loan section
- Click on Apply for loan
- Fill in the details as requested
- Upload the documents in soft copy
- Submit the application
To meet the additional fund requirements of your business, unsecured loans are easy to obtain for eligible borrowers. However, you should never forget to check out the unsecured business loan interest rate of a specific lender and compare it with the rates provided by other financial institutions. For the businesses with a good credit score, the unsecured business loan interest rates tend to be on the lower side. It can be said that if you have a sound financial position and good market repute, you can add unsecured business loans as an alternative source of finance for your business.