India has recently climbed 23 positions to rank 77th in the ‘Ease of Doing Business’ 2019 survey conducted by the World Bank. The government aims to transform India into a $5 trillion economy by the year 2024. For achieving such a goal, aiding start-ups and small businesses is of utmost importance.
Start-up businesses mostly require financial assistance to set up their business premises, increase capital, employ workers, or expand the business. For any start-up, coping up with the miscellaneous expenses and countless responsibilities is not easy. While for funding the expenses, they can avail a loan from a lending house, having to pledge collateral against the loan is challenging. As such, unsecured business loans could be the best alternative for enterprises.
Advantages of a collateral-free business loan
Working capital liabilities such as revenue collection, debt management, payments, maintenance of inventory, etc. can be financed through a business loan. Such loans are custom-made to address the financial shortcomings of new business houses, as well as established ones. To make maximum utilisation of a business loan, it is first necessary to determine how much working capital the business needs.
Here are some of the advantages of availing unsecured business loans –
- Lesser risk
Financial institutions do not demand any collateral, which leaves you from pledging any asset. This feature of unsecured loans prevents borrowers from feeling burdened.
- Boosting CIBIL score
Availing a collateral free business loan and repaying it successfully within the stipulated period can help enhance your credit score. If an entrepreneur is aware that he/she does not own a promising credit score, he/she can utilise timely repayment of a loan as an intermediate to improve it.
- Faster approval of loan application
In case of secured loans, verification and evaluation of the mortgaged assets could go on for months, causing undue delay in a loan approval. However, approval of an unsecured loan need not require such a lengthy process. This ensures that you avail the loan faster.
- Flexible borrowing and repayment options
Unsecured business loans also enable borrowers to repay the loan according to their convenience. Also, if the borrower does not wish to utilise the entire loan amount at present, s/he can use as much is needed and pay interest only on the utilised sum, instead of the whole loan amount.
With all these pros combined, unsecured business loans of up to Rs. 30 Lakh can be withdrawn by business houses to meet minor or major financial requirements. The only deciding factor that comes in the way is the eligibility criteria set by the lending body.
Eligibility criteria of unsecured business loans
To qualify for availing such loans, the borrower has to meet the following business loan eligibility criteria –
- The borrower has to be between 25 and 55 years of age.
- The business must have had an existence of at least 3 years.
- Income tax returns filed for at least 1 year preceding the loan application.
The authenticity of a borrower and his/her business is determined through the following documents –
- KYC (Know Your Customer) documents like Aadhaar card, passport, voter ID card, PAN card, etc.
- Certificate proving the business existence.
- Bank statements of the preceding month.
Organising all the documents required for a business loan before applying for it, smoothens the approval process.
According to NASSCOM, start-ups in India have experienced a 108% growth in total funding. Unsecured business loans happen to be a major part of such funds, backing small and developing businesses to expand and flourish.