Most of the small businesses start with limited investment and might require urgent funds due to many reasons during the whole business lifecycle. When a small business owner wants to take a loan for their business, they are not in the position to bargain with banks, as they usually ask for security for taking the loan. Unsecured loans do not involve any security which is to be given to the lender. Unsecured loans are also disbursed faster (just within a few days) All lenders in India do not provide such type of loans.
Unsecured loans are provided by NBFCs and various other such financial institutions in India.
When you compare between secured and unsecured loans, unsecured loans are much better.
Here are a few reasons why unsecured loans are better for a small business:
1. The application process is simple
The application process for an unsecured loan is much simpler than that of a bank loan. You just have to visit the site of the lender, fill the application form, and upload the required documents.
2. There are quick disbursal of funds
After you apply for the loan, and the loan is approved, the loan disbursal just takes a few days. Some lenders even disburse the loan amount within 3 days or less.
3. Business finances are strengthened
A business needs to have access to some resources at all times as any business growth opportunity can come anytime. If there is a cash flow situation, or there is an issue in meeting the working capital requirements, an unsecured loan for a short period of time until the situation improves is a good option.
4. There are faster loan approval and funds can be accessed when required
As simple is the application for an unsecured loan, so is the loan approval. Due to the improvement in technology, there are speedier loan approvals nowadays, which works right from the profile, design, to disbursing loans for small businesses.
But before you go for an unsecured loan, here are some things to consider:
1. They can be more expensive than the secured loans
Business loans without security are more risky for the lenders, because of this reason, they usually charge higher interest rates as compared to secured small business loans and therefore, the interest paid will be more in case of an unsecured loan.
2. They are hard to qualify for
Because of the risk that is related to an unsecured loan for the lenders, these loans can be hard to qualify for. If you do not have a credit history or if there is a very poor credit history, then it will be really difficult to be eligible for such a loan.
3. There are some negative effects of defaulting
Defaulting on even an unsecured loan will have a negative effect on your credit score, which will it more difficult to avail loans in the future.
Many a time, getting a secured loan is difficult, especially when you are growing your small business.
Unsecured loans if taken from the right source/lender, and for the right purpose can help the small businesses a lot.
NBFCs are the unsecured loan lenders that provide unsecured loans to small businesses.
If you want to take a loan form an NBFC, you should be ready to answer the following questions:
1. What is the business turnover?
Business turnover should be between Rs. 15 lakh to Rs. 1 crore for the sale the business has made during that year.
2. What is your age?
Age of the applicant should be between 21 to 65 years.
3. What is the age of the business?
The business should be active since at least a year.
4. What is the credit score?
A credit score between 750-900 is considered to be a good credit score for the lenders to approve the loan application.
5. Are all of the required documents in place?
All of the documents required by the lender including the business plan should be ready with the borrower.
If you plan to go ahead with an NBFC to take a business loan, here are the eligibility & documents required:
- The age of the applicant should be a minimum of 21 years when applying for the loan and a maximum of 65 years at the time of loan maturity.
- The business should be at least 1-3 years old.
- The business turnover should be between Rs. 15 lakhs to Rs. 1 crore.
- The residence of the business owner should not be used as a place for business operation and the small business owner should own the business premises.
- The credit score/CIBIL score is a very important criterion. A bad credit score is not a good sign.
- Identity proof (PAN card) and address proof (Aadhaar) of the proprietor.
- Bank statement of the past 12 months.
- Latest Balance sheets and P&L.
- Income Tax Returns of the previous 2-3 years.
- Compliance and licenses required to run the business
- GST registration receipt and challan.
If you require some funds for your business, you can go for an unsecured loan from Gromor Finance at an affordable interest rate!