All You Need To Know About Unsecured Loans
All You Need To Know About Unsecured Loans
Money is needed for everything from expanding your business, hiring new employees, buying equipment or updating technology, etc. All these needs can be met either from the profits made in the business or from the personal credit availed by the business owner.
Whenever there is a shortage of funds in a business, taking a loan from any financial institution would be a reliable way.
Depending on your requirements, you can approach lenders from banks, NBFCs, or any other institutions to raise money for your business.
You can choose either a secured loan (with collateral) or an unsecured loan (without collateral).
Secured loans can be taken from banks with collateral. The documents required to avail of a secured loan are different as compared to an unsecured loan, hence the loan disbursement rate is different.
Unsecured loans, on the other hand, do not require any security, the documentation required is minimal and you get the loan within a few days.
The detail about the unsecured loan is given below:
Some of the benefits of unsecured loans:
- Unsecured loans do not involve any security and hence if the borrower fails to service the loan, the lender cannot foreclose the property offered as security, which can be risky for the lender.
- Unsecured loans are the best option if the business needs funds immediately.
- Getting an unsecured loan is much easier these days as there are many new lenders in the market who offer this facility to small businesses.
- Unsecured loans can be availed whenever the business has an adverse cash flow or does not have sufficient resources to meet the day-to-day business expenses till the situation improves.
- The loan application can be made online for taking an unsecured loan. It is much easier than going back to the lender again and again.
- Online loan works through technology and hence loan disbursal and approval is very fast.
Apart from having so many advantages, there are also some disadvantages that are associated with an unsecured loan.
Disadvantages of unsecured loan:
- Though the lender cannot confiscate your property in case of an unsecured loan, he can sue you in a court of law. In such a case, you will then have to pay back the principal loan amount, accrued charges, and court fees as well.
- This will affect your credit score in a negative way and may make it difficult for you to get loans in the future.
- The lender earns profit on the interest you pay on the loan. If you miss this, the lender does not get any benefit. To avoid this, the lender will check your credit report and may also limit the amount of money that can be given to you.
If you decide to take an unsecured loan, then before selecting a lender, it is important that you go through the terms, conditions, and eligibility criteria thoroughly.
Eligibility Criteria for Unsecured Loan:
- The age of the applicant should be minimum of 21 years (at the time of loan application) and a maximum of 65 years (at the time of loan maturity).
- The minimum turnover of the business should be Rs.15 lakh and the maximum turnover should be Rs.1 crore.
- For a business to be eligible for a business loan, it should have been in operation for a minimum of 1 year and a maximum of 3 years.
- The credit score of the business should also be good. A good credit score is between 750-900. But it also depends on the lender. Having a bad credit score can have a negative impact on the lender while applying for a loan.
To assess the financial stability of your business, lenders ask for certain documents.
Documents required for unsecured loan:
- PAN Card of the Proprietor
- Proprietor’s Aadhar Card
- Bank statements of all bank account for the last 12 months (in PDF format)
- Income tax return for the last 2 years
- Latest Balance Sheet and P&L (Provisional or Audited) – used to evaluate the position of a business. Financial statements are prepared at the end of each accounting period prior to the audit.
- Latest audited balance sheet and P&L – audited balance sheet and P&L signed and approved by public accounting firms
- Shop Establishment License or Gumasta – This license is given by the Municipal Corporation of Greater Mumbai under the Maharashtra Shops and Establishment Act and is necessary for all businesses as it is required to run your business through a shop or office or place of business. Provides a certifying authority for. Similarly, there are different sets of licenses that are required by the local authority
- GST Registration Receipt
- GST Receipts or Invoices
If you want to apply for an unsecured loan, follow these steps:
- Visit the lender’s website and apply for the loan.
- Upload all the required documents carefully.
- Wait for the evaluation of your loan application. Once the verification is complete, the lender will approve your loan application.
- The last step is loan disbursement which will be done immediately after loan approval.
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