All of the tasks such as expanding the business, hiring new employees, purchasing equipment, or upgrading technology all of these require funds. All of these requirements can either be met from the profits earned by the business or the personal credit raised by the business owner.
Whenever there is a shortage of funds in the business, a reliable option would be to go for a loan from any financial institution.
You can contact lenders from among banks, NBFCs, and any other such institutions to raise funds for your business depending upon the requirements.
You have a choice to choose from secured loans (with collateral) and unsecured loans (without collateral).
Secured loans can be availed from banks with security. The documentation for a secured loan is different than that of an unsecured loan, and so is the loan disbursal rate.
Unsecured loans, on the other hand, do not require any security, the documentation required is also minimal, and the loan disbursal is just within a few days.
Let us know more in detail about unsecured loans.
Some advantages of unsecured loans:
- Unsecured loans do not include any security, and therefore, if the borrower defaults on a loan, the lender cannot seize the asset given as security, which might be a risk for the lender.
- Unsecured loans are the best option if there is an urgent or quick requirement of funds for the business.
- Getting an unsecured loan is easier nowadays since there are many new lenders in the market, providing small businesses with this service.
- Whenever there is an unfavorable cash flow in the business, or there are no adequate resources to meet the routine business expenses, an unsecured loan can be taken until the situation improves.
- Loan application for an unsecured loan can be made online. This is much easier than the trouble of visiting the lender again and again.
- Online loans are backed up by technology, and therefore the approvals and disbursals are much faster.
Apart from having advantages, there are some disadvantages that are related to an unsecured loan as well.
Disadvantages of an unsecured loan:
- Even though the lender cannot seize your assets, the lender can sue you in court. In such a case, you will then have to pay the original loan amount, the ate fees, and also the court fees.
- This will affect your credit score in a negative manner and might cause problems in future loans.
- The lender makes a profit on the loan with the interest that is charged from you. In case there is a default, the lender is left with no profits. To avoid this, the lender will check your credit reports and might also limit the amount of money they lend you.
If you decide to go for an unsecured loan, before selecting the lender, it is necessary that you go through the terms and conditions and the eligibility criteria thoroughly.
Eligibility criteria for an unsecured loan:
- Applicants age should be a minimum of 21 years (at the time of loan application) and a maximum of 65 years (at the time of maturity).
- Minimum turnover of the business should be Rs. 15 lakhs and the maximum turnover should be Rs. 1 crore.
- For a business to be eligible for a business loan, it should be active since at least a year and a maximum of 3 years.
- The credit score of the business should also be good. A good credit score is between 750-900. But it depends on the lender. Having a bad credit score will have a negative impact on the lender when applying for a loan.
To evaluate the financial stability of your business, the lenders ask for some documents.
Documentation required for an unsecured loan:
- 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)- used to measure the soundness of a business. The provisional financial statements are prepared at the end of the accounting period before the audit
- Latest Audited Balance Sheet & P&L- The audited balance sheet and P&L are signed and approved by public accounting firms
- Shop Establishment License/Gumasta- This license is governed by the Municipal Corporation of Greater Mumbai under the Maharashtra Shops and Establishment act and is compulsory for all businesses because it gives a certified authority to conduct your business through a shop or an office/business place. Likewise, there are different sets of licenses which the local authority would need
- GST Registration Receipt
- GST Receipts/Challans
If you want to apply for an unsecured loan, follow these steps:
- Go to the website of the lender and apply for a loan.
- Upload all the required documents carefully.
- Wait for the evaluation of the application. When the verification is complete, the lender will approve the application.
- Then the last step is loan disbursal which will be done immediately after loan approval.
Are you looking for an unsecured loan? Get in touch with Gromor Finance for loans at affordable interest rates and quick loan disbursal!