Here’s How To Apply For An Unsecured Business Loan
The better prepared you are before making your request for business financing, the greater the likelihood of getting your business loan approved. We share how you should initiate the loan application process.
Are you looking to branch out your existing business or launch a new and exciting venture? There may come a time when you will have to get a business loan in order to help with cash flow or to pay for unexpected expenses. Many lenders will require you to pledge collateral, such as your home, business equipment or inventory, as part of the criteria for a business loan. Want to get a business loan but don’t have adequate collateral to put up against the loan? Or aren’t keen to put your property on the line as security? In such circumstances, an unsecured small business loan may be an ideal alternative for you.
An unsecured small business loan requires no collateral. In other words, you do not need to pledge any asset—tangible or otherwise—to get a business loan of this type. This means the lender accepts the risk of default, and has no legal right to seize your personal or business assets if you can’t repay the loan. While you don’t need to put up collateral against an unsecured small business loan, lenders would still require your business to have strong annual revenue, several years of operating history, and excellent credit history to qualify.
Also Read: Advantages of Getting A Business Loan
How do you prepare your application for a business loan? We tell you what to expect a lender to ask for when you apply for unsecured small business loan:
Determine The Reason For And The Amount Of Loan You Need
It may seem too obvious, but lenders will definitely want to know what you plan on using your unsecured small business loan for. You can get a business loan for everything from covering seasonal sales variances, financing a piece of equipment, to funding an additional manufacturing space. Figuring out the intended use of your unsecured small business loan will help you decide how much money your company needs. Overestimating your funding needs may lead to unnecessary rejection of your application for a business loan or interest charges that could have been avoided. When creating an estimate of the loan amount, make sure you prepare a well-researched budget supported by financial projections (profit & loss and cash flow statement).
Put Together The Documentation You Need
Assemble the documents required for your unsecured small business loan application. Some common documents that lenders will want to see as a part of their criteria for business loan include income tax returns, balance sheet, profit & loss account statements, Form 16 A, bank statement, business vintage and Certificate of Practice. Lenders refer to these to understand your financial standing and that of your business, and to ascertain whether financing your business is a safe bet. Make sure your documentation is complete to ensure an easier and faster loan application process.
Review Your Credit Score And History
Before you apply for unsecured small business loan, you should review your personal and business credit reports. Check whether there is any misinformation, such as report of a late payment on a previous loan that you’re sure you paid on time. If you spot any error, report it to the credit bureau and ask for it to be fixed. Lenders also look up credit scores in order to determine whether or not the principals who are applying for an unsecured small business loan are trustworthy enough to repay the loan on time and in full. You are likely to get a business loan approved if you have a stellar credit score of say 700 and above.
Prepare A Business Plan
In order to get a business loan from just about any lender, you have to prepare a comprehensive business plan. Your business plan should outline your company’s profile and vision, past financial statements, and income, expense and cash flow projections for at least a year. Make sure your proposal also includes an extensive market analysis, tangible strategies that have increased profits and sales previously, and your future marketing plans. Give details of the expenses that the loan amount will be used to pay for. You also need to convince a lender that your company is well managed, and your business plan can be a great way to flaunt your experience and the qualifications of key management. Therefore, include your resume and those of co-owners in the proposal.
Look Around To Get The Best Rates And Repayment Terms
You may find that many lenders are charging higher interest rates on unsecured small business loans when compared to secured business loans. Why: with unsecured small business loans, there is no surety that the lender will be repaid. Since there is no collateral pledged, the lender’s options for recourse are tend to be limited in case you default on payments. This additional risk means a higher interest rate. Nevertheless, you should approach different lenders to get the best rates and repayment terms on unsecured small business loans. Many longer-term business loans come with lower interest rates; therefore, you can consider opting for a longer tenure on your loan.
Unsecured small business loans from Bajaj Finserv offer affordable interest rates and flexible repayment options. What is more, you don’t need to pledge any collateral or bring in a guarantor. Get a business loan from Bajaj Finserv today and avail of financing quickly!