Every business requires funds at some point in time for various reasons like expansion, hiring more people, buying a piece of equipment or machinery, to meet the working capital needs, etc. There might also be a possibility that there is a requirement of quick or urgent funds to complete a business task.
Banks and NBFCs usually provide loans to businesses. Banks mostly give a loan with security, the process for which is quite long, the documents required, and the rate of loan disbursal is long too.
Therefore, going for an unsecured loan from an NBFC is a much better option for a small business owner.
Here’s what makes an unsecured loan better than a secured one:
1. Ease of application
Since the application is online and the eligibility criteria and the documentation is very minimal, these loans are much quicker than then secured loans.
2. Strengthened business finances
A small business needs to have enough funds and resources at all times, because situations, where funds are required, can present themselves anytime and also any business growth opportunity.
If there is unfavorable cash flow or there is a shortage of funds to meet the everyday working capital needs, an unsecured loan will help a great deal till the situation improves.
3. Faster loan approval & disbursal
Due to the digital revolution, applying for an unsecured loan is very easy and so is loan approval. One just has to log in the lender’s website, fill a simple application, upload the necessary documents, and if everything turns out to be fine, the loan approval and disbursal is also very quick. Most of the lenders nowadays have technology backed loan approval process to disburse loans as fast as possible. This way, the business owner is more focused on the business processes than the paperwork.
4. Timely access to funds
Due to the faster loan application, approval, and loan disbursal, there is timely access to funds, which is a big advantage to a small business owner.
Unsecured loans can be availed from NBFCs in India as they offer quick loans.
The loan criteria of an NBFC is much more flexible than that of a bank.
Before deciding on the lender, it is necessary to go through the eligibility criteria of different lenders and select one whose eligibility criteria you can meet.
If you contact an NBFC, there are certain things an NBFc would ask you before granting a business loan.
Here are things every NBFC will ask before giving a business loan:
1. Business turnover
Every NBFC will first check the turnover of the business i.e. how quickly the business can collect cash or the sales during a particular period. The minimum turnover to be eligible for a business loan should be between Rs. 15 lakhs to Rs. 1 crore.
2. Age of the applicant
Age of the applicant should be a minimum of 21 years and a maximum of 65 years.
3. Age of the business
Age of the business or number of years a business has been active for is also an important criterion. This depends from institution to institution but mostly 3 years is what the lenders look for.
4. Credit score
Another important criterion is the credit score. Credit score if every applicant is evaluated thoroughly. Some NBFCs even have their own methodology for calculating the credit score.
5. Documentation
Identity proof, address proof, and other financial statements and documents.
If you want to apply for an unsecured loan, here are the eligibility criteria and the documents required:
Eligibility criteria:
- Business turnover (minimum Rs. 15 lakhs)
- Age of the applicant (minimum of 21 years)
- The activity of the business (minimum 1 year)
- ITR should be more than 2.5 lakhs of the previous year
- Credit score (between 750-900, a credit score above 750 considered good)
- Place of business operation should not be the owner’s house
- Business premises should be owned by the owner
Documents required:
- PAN Card of the proprietor
- Aadhaar Card of the proprietor
- Bank Statements of all the bank accounts (in PDF format) for the last 12 Months
- Income Tax Returns for the previous two years
- Latest Balance Sheet & P&L (provisional/audited)
- Latest Audited Balance Sheet & P&L
- Shop Establishment License/Gumasta
- GST Registration Receipt
- GST Receipts/Challans
All of the eligibility criteria have to be met in order to avoid any loan rejection.
Here are some reasons why your loan application may get rejected:
1. No credit history
If you have just started with the business, it is possible that there is no credit history, but the lending institution has to evaluate the credit history to know the creditworthiness of the applicant and the capability of repaying the loans. If history is not there, it will be difficult for the lender to do so.
2. Bad credit history
Having a bad credit history is even worse than not having one as the lender would not take any risk by offering a loan to such a business.
3. Too much of credit
If the lender sees the borrower has a lot of credit, the lender might get suspicious that business might become debt-ridden in the near future. Owing to this, the lender might reject the application.
4. Incorrect business details
Mistakes like wrong name or address or any other details and documents submitted by the lender could lead to rejection of the application.
5. No proper finances
Problems in cash flow and any other financial fundamentals can cause distrust of the lender for the borrower.
6. Risky business industry
If the industry in which your business is in is risky, the lender might reject the application after assessment and investigation.
If you need an unsecured loan for your business, you can contact Gromor Finance for loans at affordable interest rates!
