Money is needed for everything like growing your business, hiring new employees, buying equipment or updating technology, etc. All these requirements can be met either from profits earned in the business or from personal credit availed by the business owner.
Whenever there is a shortage of funds in a business, taking a loan from any financial institution would be a reliable method.
You can approach lenders from banks, NBFCs or any other institutions to raise funds for your business depending on your needs.
You can choose either a secured loan (with collateral) or an unsecured loan (without collateral).
Secured loans can be taken from banks with surety. The documents provided for availing a secured loan are different as compared to an unsecured loan, hence the loan disbursement rate varies.
On the other hand, an unsecured loan does not require any security, the documents required are minimal and you get the loan within a few days.
The details of unsecured loans are given below:
Some of the benefits of unsecured loans:
- There is no security involved in an unsecured loan and therefore, if the borrower fails to repay the loan, the lender cannot confiscate his assets given as security, which can be risky for the lender.
If there is an urgent need of funds for the business, then unsecured loans are the best option.
It is quite easy to get an unsecured loan these days, as there are many new lenders in the market, which offer this facility to small businesses.
- Whenever there is an unfavorable cash flow in the business, or there are not enough resources to meet the day-to-day business expenses, an unsecured loan can be taken till the situation improves.
Loan application can be done online for availing unsecured loan. This is much easier than having to go to the lender again and again.
Online loan works by technology and hence loan getting and sanctioned is very quick.
Apart from having so many advantages, there are also some disadvantages that are associated with an unsecured loan.
Disadvantages of Unsecured Loans:
- Although in case of unsecured loan, the lender cannot confiscate your property, but he can sue you in court. In such a case, you will then have to pay the principal loan amount, the amount consumed and the court fees as well.
- This will negatively affect your credit score and may make it difficult for you to get a loan in future.
- The lender makes a profit on the interest paid by you on the loan. If you miss to do so, the lender does not get any benefit. To avoid this, the lender will check your credit report and may even limit the amount of money it can give you.
If you decide to take an unsecured loan, before selecting a lender, it is very important that you go through the terms, conditions and eligibility criteria.
Eligibility Criteria for Unsecured Loan:
- Applicant age should be minimum 21 years (at the time of loan application) and maximum 65 years (at the time of loan closure).
- The 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 last for a minimum of 1 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 also depends on the lender. Having a bad credit score can have a negative impact on the lender while applying for the loan.
In order to assess the financial stability of your business, lenders ask for certain documents.
Documents required for unsecured loan:
- Proprietor’s PAN Card
- Proprietor’s Aadhar Card
- Bank details of all bank accounts for the last 12 months (in PDF format)
- Income tax return of last 2 years
- Latest Balance Sheet and P&L (Provisional or Audited) – Used to evaluate the position of a business. Financial statements are prepared at the end of each accounting period prior to the audit
- Latest Audited Balance Sheet and P&L- Audited Balance Sheet and P&L are signed and approved by Public Accounting Firms
- Establishment License of Shop or Gumasta- This license is given by the Municipal Corporation of Greater Mumbai under the Maharashtra Shops and Establishment Act and is required for all business as it is required to operate your business through a shop or office or place of business. Provides a certifying authority for Similarly, there are different sets of licenses that the local authority requires.
- gst registration receipt
- GST Receipts or Invoices
If you want to apply for an unsecured loan, follow these steps:
- Visit the lender’s website and apply for the loan.
- Upload all the required documents carefully.
- Wait for your loan application to be evaluated. Once the verification is complete, the lender will approve your loan application.
- The last step is to grant the loan which will be done immediately after the loan is sanctioned.