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Is my Business Eligible for an Unsecured Business Loan?

eligibility for unsecured business loan

It has become common for small and medium enterprises to avail business loans to fund their requirements such as expansion and machinery upgrades. Some entrepreneurs apply for loans to even start a business. These days financial institutions are offering loans to businesses with and without security or collateral. Getting approval for such a loan is not difficult if your business meets the eligibility criteria of the lending institution and has all the required documents handy. 

Unsecured business loans are very popular due to the speedy processing of applications. However, as the risk is slightly higher for the lender, the unsecured business loan interest rates are likely to be slightly on the higher side compared to that of secured business loans.
 

Is My Business Eligible to Avail of a Business Loan Without Collateral?

The eligibility criteria for unsecured business loan lenders in India vary widely. Some offer loans to start-ups while others do not. Also, the terms of repayment are likely to be different. Here’s the list of generic eligibility criteria for availing business loans without security:
 
  1. Manufacturers, B2B service providers, distributors, wholesalers and traders who require urgent funds for personal or business reasons. This includes partnerships, sole proprietorships, private limited companies and even professionals such as doctors, architects and engineers.
  2. Most lenders require businesses to be operational for at least three years.
  3. The business should be able to prove that it has a reasonably solid credit and financial history.
  4. The business owner may need to provide proof of feasibility. When the lender takes the risk of advancing funds without a physical asset as collateral, it needs some sort of guarantee of repayment. The lender should be convinced that the business is worth investing in.
  5. The borrower should submit a business plan to prove the financial viability of the business. After properly analysing the current situation, the plan should include projected cash flows in the future, acquisition of assets and equipment and so on.
  6. Annual turnover of the business is likely to be an important factors
To Avail Unsecured business loans
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Business loans are flexible and can be taken for a wide range of reasons such as paying salaries, expansion, purchase of assets and equipment, upgrading technology, opening new units or warehouses and increasing inventory.
 
Also Read: Know About the Application Process of Unsecured Business Loan
 

Documents Needed to Apply for an Unsecured Business Loan

As for any kind of loan, you will need to submit a few documents when applying for unsecured loans for business. However, it is minimal and there is a quick turnaround time for these loans. You will need:
  • Application form, duly filled
  • Proof of registration/licence of the business
  • KYC documents (self-attested copies) as specified, of the borrower and guarantors, if any
  • Audited annual financial statements of the business
  • Bank statements for the last six months
  • GST returns for the previous financial year
  • List of directors and their shareholding patterns as applicable
  • Signed list of existing term loans and working capital facilities

Tips to Improve Eligibility for Getting a Business Loan Without Collateral

After going through the above information, if you find that at present your business is not eligible for an unsecured loan, you can try and improve your chances with the following methods:

Get your financials audited

Since unsecured small business loans are no-collateral finance, audited financial statements assure the lender that the applicant is not falsifying papers. If you want quick approval or an unsecured business loan interest rate at a lower percentage, get your financials audited from a chartered accountant right away.  

File returns on time

Whether you are filing your income tax returns or a GST return, make sure you do so before the deadline. When filing your taxes, don't give misleading information in the hopes of receiving a rebate or exemption. Usually, lenders ask you to furnish an ITR of two to three consecutive years before approving your unsecured business loan non-collateral. Therefore, filing on-time returns is important for your loan approval.

Business plan

Before proceeding with your loan application, lenders are keen to learn more about your business concept. Prepare a well-thought and well-researched business plan. Mention the anticipated revenue numbers, future sales projections, area of investment etc. Remember, a strong business plan is essential for obtaining an unsecured business loan.

Previous debts

If you are burdened with too many debts, whether or not they are related to your business, try to pay them off first. If your credit report shows the loan default or delayed EMI, the lender will either reject your application or charge you with a higher unsecured business loan rate of interest. 
 
Apart from this, ensure all the required documentation including GST returns, registration, list of directors, loans etc are kept handy. If you are a start-up, you can try getting a secured loan at first and then apply for an unsecured loan after three to five years for expansion. MSME business loan interest rate may be slightly lower if you offer some security.
 
Also Read: Fuel Your Business Growth with Unsecured Business Loans
 

How to Get an Unsecured Business Loan in India?

To receive an unsecured business loan from NBFC, follow the steps outlined below. 
  • Visit the website of your favourite NBFC.
  • Tap on the drop-down menu and scroll down to the unsecured business loan section.
  • Click on the "Apply Now" button.
  • Fill in your information.
  • Upload the softcopy of the required documents.
  • Click on the "Submit" button. 

Following submission, if your details match the lender's requirement, they will contact you for further proceedings.
 
Unsecured business loans are a quick and easy way to get additional funds for your business without risking any of your assets. It makes sense to avail it if your business is eligible and you need immediate funds.
 
Disclaimer: This post was first published on 18 March 2021 and has been updated for the latest information, freshness, and accuracy.
 

 

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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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