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Know about the common unsecured business loan eligibility criteria

You may have heard about unsecured business loans as an easy and fast process of funds when you require financial support for your business. The best part of this loan is that you need not keep any collateral or mortgage with the lender. The agreement for this loan disbursal is based on a written consent that you will repay the borrowed amount. But this collateral free loan is high-risk for the lender and he may ask for a high interest rate. Read on to know about the unsecured business loan eligibility criteria that you may have to fulfil while you apply for it.

You can get collateral free loans for different types of business that include the following:

  • Term Loan

This loan is disbursed for a specific time duration as fixed by the lender and you have to repay it back in the form of EMIs (Equated Monthly Instalments) within a deadline.

  • Working Capital Loan

Working capital consists of the day to day expenses required for a business You can apply for a this type of loan if you face difficulties while running your business. The lender will check your creditworthiness and repayment capacity before approving the loan.

  • Overdraft

You can avail this loan in parts, based upon certain conditions agreed by you and the lender. An advantage is that the lender would charge the interest rate only on the availed amount.

  • Government loans

There are several loan schemes under in this category where the interest rate is low if you are a small business owner. For example, start-up loans, Prime Minister Employment Generation Program (PMEGP), Credit Guarantee Fund, Trust for Micro and Small Enterprises (CGTMSE), SIDBI’s Loans, etc.

  • Merchant Cash Advance:

It is a type of cash advance based on the credit card sales deposited in a merchant’s account. The loan amount depends on the credit card swipes or monthly volume of the business.

  • Micro Loans

Micro loans are generally offered by Micro Finance Institutions (MFIs) to meet the instance cash requirement. The loan amount ranges approximately from a few thousands and can go up to lakhs or more depending upon your business requirements.

  • Business Credit Cards

If you are a business owner, you can also take business loans against your business credit cards and use it for your working capital requirements.

The unsecured business loan eligibility criteria may differ between lenders but the standard requirements include:

  • Specification of the type of business that you own. For example, wholesalers, retail traders, professionals, B2B providers, manufacturers, etc. Some banks or financial institutions may not provide loans to start-ups.
  • To get unsecured business loan, you have to submit your business licence or registration document along with an error-free and filled up application form
  • The number of years for which you have been running the business, for example, three to five years.
  • A list of your current loans if any and details about working capital
  • You should have a good credit worthiness and excellent financial history of your business. Lenders may ask for proof that the business is profit making, disclose the turnover of the business for the past few years.
  • Some lenders may ask you to present the details of using the loan amount in the form of a business plan, projected cash flows for the next couple of years, etc.
  • Ensure that you have a good credit score. You can do this by making your loan payments on time like the credit card bills, monthly loan instalments, etc. A CIBIL score of 750 or above would be an advantage.
  • You may have to get a guarantor for the loan and submit your and the guarantor’s KYC documents along with your own like your id and address proof, bank pass book, etc. The lender may ask for the past 6 months’ bank statements provided by your bank

You may require additional funds for your business several times due to reasons like a rough patch, decrease in the revenue or sudden losses. During these circumstances, you can apply for collateral free loans to meet your requirements without mortgaging any asset. However, you have to fulfil certain unsecured business loan eligibility criteria for getting the loan. The lenders would stick these requirements as approving an unsecured loan is high-risk for them.

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