Know About the Application Process for Unsecured Business Loan

Businesses, especially small and medium enterprises (SMEs) and even start-ups, often rely on unsecured business finance to fuel growth. The biggest reason is that you do not need to pledge any collateral for this type of loan. Easy documentation, flexible tenure, low interest rates, and quick approval are the other reasons for the growing popularity of unsecured loans. Though the application process for it might vary from one financial institution to another, let us look at the basics of unsecured business loan eligibility and the documentation involved. You will also learn about the advantages of an unsecured business loan for start-ups and other businesses and the application process in detail.

Unsecured Business Loans

In this type of loan, there is no need to pledge collateral as you do in a secured business loan. The loan is issued to the business based on its creditworthiness, health, and cash flow. Business owners who do not have collateral or do not want to put their assets on hold can apply for unsecured business loans for easy access to much-needed capital.
 

Advantages of Unsecured Business Loans

 

1.   Collateral-free:

   There is no need to pledge collateral to apply for this loan. Therefore, you can apply for this loan without risking any of your assets.  

2. Low and Attractive Interest Rates:

   The unsecured business loan interest rate is generally low, especially for those who have good credit scores. The lender can either provide fixed or flexible interest rates. Other factors that will determine the interest rate are business history, loan amount, and loan tenure.

3. Flexible Repayment Tenure:

    The loan tenure is flexible and can range anywhere from 12 months to 36 months.
    

4. Quick Approvals: 

   You can simply apply online for an unsecured business loan. If you meet the eligibility criteria and your documents are in place, then your loan will get approved within 1-2 days.

5. Improve Credit Score: 

   If you have a poor or average credit score, then you can improve it by making timely repayments of your unsecured business loan.  

 Also Read: Is An Unsecured Loan The Right Option To Fund The Growth Of Your Business?
 

Unsecured Loan Application Procedure

 
Before we go through the steps involved in a small business loan application, let's look at some common procedures that you must follow before applying for a business loan.
 

1. Research Lenders:

   As there are many lenders available in the market, you should research each one of them. Apart from checking the lender’s reputation, check what are the offered loan interest rates, tenure, loan amount, and processing fees.

2. Unsecured Business Loan Eligibility:

   Every financial institution has its own set of qualifying criteria. Therefore, read the lender's mandatory eligibility requirements on their website before filling the business loan application form. Some common qualifying criteria for business financing are:
   • Age: Applicants should be an Indian national and must be under the age limit set forth by the financial institution.
   • Occupation:  Self-employed professionals: Chartered Accountants/ Company Secretaries/ Architects/ Doctors
       Self-employed non-professionals: Service Providers/ Traders/ Sole Proprietors/ Manufacturers/ Retailers
      
     Entities: Trusts/ Private Limited Company/ Partnership Firms/ Limited Liability Partnership (LLPs)
      
   • Business Status: If you run a small or medium enterprise, it should have been in operation for at least 5 years.
   • Business Loan Tenure: Business loans are available for up to 3 years with a flexible repayment schedule.

3. Documentation: 

   To apply for an unsecured business loan, you need to prepare all the necessary supporting documents for a hassle-free application process. The better organised these documents are, the faster will be the approval process. The documents required will vary from one lender to another. However, some common documents needed include:
   • Latest Audited Financials
   • GST Returns for Financial Year
   • Latest 6 Months Bank Statement of All Operative Accounts
   • Latest Share Holding Pattern/List of Directors, if Applicable
   • Self-Attested KYC of Business Loan Guarantors and Borrowers
   • Self-Declaration on Running Term Loans/Working Capital Facilities


4. Also Read: Why Unsecured Business Loan is a Better Option For Small Businesses
    

5. Application Form:

   The last step would be to ensure that the application form is duly filled to avoid any rejection due to incomplete forms.