When you are thinking of starting a business it can be a daunting task to fund it to expand and develop in a dynamic market. However, you can do this by taking out an unsecured business loan. While these loans are readily available, you need to keep certain factors in mind in order to get approval.
A business loan helps you borrow money from financial institutions. However, you have to repay this amount together with the interest within a certain period of time. Plus, you don’t need to provide collateral to the financial institution when you take out unsecured business loans.
Nitin Mathur, CEO of Tavaga Advisory Services, said, âAn unsecured business loan, or popularly known as a business loan, is a loan that is granted with no collateral or security guarantees. Both banks and non-bank finance firms offer borrowers business loans such as working capital loans, start-up loans, bill financing, equipment financing, and overdrafts. “
Ajay Mishra, Head of Business Loans, Paisabazaar.com, said, âAs with all loans, those looking to obtain business loans should choose a lender who can provide the desired loan amount at the lowest possible interest rate for a comfortable loan term represents its repayment capacity. Since the processing of corporate loan applications can vary widely from one lender to the next, those looking to obtain unsecured corporate loans should compare the disbursement TAT (lead time) while evaluating unsecured corporate loan options. “
In addition, the loan applicant should also consider the type of business loan facility, such as a term loan or an overdraft / cash facility. For example, loans in overdraft / cash facilities would be appropriate for those who need credit to deal with common cash flow mismatches.
Loan applicants should also keep in mind that when evaluating unsecured corporate loan applications, lenders may consider the type and year of business, credit applicant’s creditworthiness, business turnover, average bank balance, bank turnover, bank statements, outstanding commitments, etc.
Many lenders may not lend money if your business does not have enough cash flow. Lenders usually evaluate the business model before approving the loan amount. Hence, you need to maximize cash flow through efficient cash management.
On the other hand, the likelihood of receiving a loan approval increases if you present a business model with an attractive sales forecast. That being said, you should always be prepared with a blueprint of your business model. It should contain details such as: B. how much money the company needs to start up and how much money is invested in growing the company from time to time, the earnings model, etc.
When taking out a loan, applicants should ideally compare the unsecured business loan options offered by as many lenders as possible. You can do this by visiting online financial marketplaces that offer business loan options from a wide variety of lenders.
Most lenders present a loan amount up to â¹50 lakh, but some offer up to â¹1 crore. The term of the loan is 1 to 5 years. Eligibility criteria for a business loan are age, business activity, sales, income tax return, bank statements for the last six months, creditworthiness of the business owner, etc. However, creditworthiness plays a crucial role in the immediate approval of business loans. It defines your ability to repay a loan amount.
âCorporate loans are available to property owners, partnerships, private companies, related companies, and individuals. Corporate loans are best for businesses that are just starting operations and may not provide material assets as collateral, “Mathur said.
âA business loan can be used for any business expansion, equipment purchase, etc. The lowest interest rate on an unsecured business loan is 14%. The interest rate on a corporate loan depends on factors such as the company’s age, profitability, future growth prospects, the company’s creditworthiness (in the case of a self-employed, owner, or partnership), “he added.
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