Business loans are available in different forms and it is important for you to understand how each loan works before making a loan application. The two most common types of business loans are secured business loans and unsecured business loans. A secured loan is a loan that is secured against an asset. You need to hypothecate an asset to get access to funds. On the other hand, an unsecured loan is a loan that needs no security. You do not need to provide any assets for the purpose of borrowing. You can apply for this type of finance option even if you do not own any assets.
The loan amount will be calculated based on your profile and credit score. If you have a high credit score, your loan application will be approved in no time. The loan is available for all types of businesses too. It is one of the most convenient forms of borrowing for your business. There are no restrictions on the end-use of the funds. You can use this amount for any purpose and take your business to new heights. Since the risk associated with an unsecured loan is high, the interest rate is slightly higher as well. Compare the interest rates offered by different lenders and then make a borrowing decision. You can make an online comparison before you finalize on a lender.
You need to start by identifying the purpose of borrowing. It will help estimate the exact amount of funds you need. You can then start scouting the market for reliable lenders in the industry. Keep the below-mentioned tips in mind when you apply for an unsecured business loan.
Check Eligibility Criteria
Before you make a loan application, it is important to ensure that you are eligible for the loan. Different lenders have varying eligibility criteria you need to be aware about. You can compare the same online and then make a borrowing decision. The basic eligibility criteria might remain the same but some lenders have a certain turnover requirement and experience you need to meet. Check the criteria online to save time and effort.
Compare Interest Rates
It is very important to understand that the EMI amount will have an interest component. The rate of interest will make all the difference to the EMI amount. You can compare the interest rates online and then fill your application form. Choose a lender with a low-interest rate so as to enjoy low EMI and low monthly outflows. However, do not just focus only on the interest rate. Understand the overall terms and conditions of the loan before you sign on the dotted line.
Check Credit Score
The lender will consider your credit score at the time of processing your application. So, it is advisable to get your free credit report and check it yourself. There are times when the credit report has errors due to human mistakes. You can contact the bureau, in that case, to make changes in the same. Certain lenders also have a credit score requirement you might have to meet. Hence, check the score before you proceed with your application.
At the time of the loan application, you will have to provide some relevant documents of your business. You need to provide KYC of the partners, memorandum of association, articles of association, proof of continuation of the business, income statement, and balance sheet. Keep your documents ready when you apply for the loan. Since there is no asset hypothecation, the loan gets processed faster than a secured loan application. If you do not have the documents ready, the approval will be delayed. Hence, gather the documents at the time of application and only then fill out the form.
Use an EMI Calculator
You need to repay the loan in the form of EMIs and an EMI calculator is a useful tool in that regard. It is available online for free and will give you an estimate of the EMI amount. You only need to provide the loan amount and tenure to get a quick estimate. You can change the inputs until you reach an optimal output. Use the calculator before you apply for the loan. The calculator will help you make the right borrowing decision.
An unsecured business loan has a transparent application and approval procedure. Your loan will be processed and approved within 10 to 15 working days. It is important to make timely repayment of the loan too. Although there is no risk of losing your property, a default in the repayment could ruin your credit score and put you in trouble. So, assess your needs, budget and research well before applying for a loan. All in all, if you go about it the right way, the business loan can help take your business to new heights and turn your aspirations into a reality.
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