Proper capital management is very important to sustain any firm, large or small. Sometimes businesses are not able to plan properly to develop financial solutions and end up in an unanticipated financial crisis.
A small business loan may help in the expansion and growth of a firm by providing capital to meet the working capital need, purchase equipment and machinery or increase the cash flow of the business.
However, if the financial health of your firm is already in a bad state offering collateral might worsen your situation. Risking any asset for a short-term loan is not a smart move. This is where an unsecured business loan for MSMEs could be helpful. A customer can get a loan of INR 50,000 to 10 crores without any collateral.
What is an unsecured business loan?
When you get a loan without mortgaging any asset to overcome the financial difficulties of your business or to maintain the cash flow, it is called an unsecured business loan. These loans are easy and fast to avail as no mortgaging process is involved though you have to pay higher interest on them. These loans offer some clear advantages like-
- These loans don’t require any collateral making it easier for smaller firms who possess no or fewer assets, to expand their business
- Applying for these loans is very simple and easy as they require minimal documentation, online forms further reduce the paperwork
- Unsecured business loans are disbursed quickly
- Repayment of the loan is planned according to the requirement of the borrower
- There is no restriction on loan amount like a secured loan
- You can improve your credit score with these loans as lenders are concerned with the profitability of your company
- Online lenders allow you to return the whole outstanding balance before the completion of the tenure without paying any penalty. This will reduce interest on the payments.
Unsecured business loan eligibility criteria
You need to match on certain parameters to avail these loans-
Credit Rating
The first and foremost requirement is that the borrower should have a respectable credit score. It means that without a respectable credit score, no lender will consider an organization for a business loan.
Financial Balance
Although most of the banks and financial institutes prefer current clients to land money, they can consider new applications as well. They check the financial balance of the applicant by reviewing their bank statements to ascertain the average balance of the borrower’s bank account and to acquire more insight into the borrower’s repayment capabilities.
Earnings
Lending institutes check the financial health of your firm by asking for 3 years of income tax returns, as well as a business profile, balance sheet, and profit and loss account. Naturally, people having a steady stream of income have a less stressful loan experience.
KYC Documents
Even if the borrower meets all other qualifying conditions, lenders will never consider giving loans if the borrower fails to show identification. You can’t get an unsecured business loan without the requisite ID Proof.
Repayment Record
Earlier loan repayment history or the credit history established by a loan seeker’s prior borrowings serves as a tool for determining the loan seeker’s credibility. Lending institutions are notified instantly when a borrower defaults on a payment and his credit rating is instantly decreased as a result of the default.
Documents Required for Unsecured Business Loan
- Personal KYC: PAN card
- Residential Address Proof (Anyone): Aadhaar Card, Passport, Rent agreement, driver’s license, Voter’s ID, Ration card,
- Banking: Last six months’ current account bank statement
- Business KYC (Anyone): GST registration certificate, shops and establishment certificate
- Financial documents (For loans greater than 20 Lakhs): 2 years Audited financials, Last 2yrs ITR, GST Returns of 6 months
Unsecured Business Loan Lenders in India
NBFC firms specialize in online lending and have moved the full process of obtaining a business loan online from application to disbursement. PNB Parivar (HRMS Package) was implemented in the year 2006 to act as a prerequisite to payroll processing/centralised salary requirements of our bank. They require minimum documentation like the borrower’s KYC and financial documents to process the business loan.
You can apply online for a business loan using an online lender’s website or mobile application based on availability. Your business loan application will be granted on the basis of your profile, and funds will be issued within the next few business days.
You may apply for an unsecured business loan of Rs. 30 lakhs if your gross revenue is Rs. 15 lakhs with a maximum payback term of 48 months. Some of the online lending firms give the option of prepayment of the loan without paying any further fees following the payment of a few EMIs.