Business loan

Steps to qualify for an unsecured business loan for your business

Unsecured business loans are a form of finance in which the applicant is not required to offer security to the financial institution or NBFC. These loans are granted based on the financial data, credit rating and income of the entrepreneur.

Business loans allow entrepreneurs to expand their business presence or inject working capital to run their business operations smoothly without providing collateral or collateral to the bank. Since no collateral is needed, the relative risk for NBFC or financial institutions remains high and you may have to pay a higher interest rate.

Read on to learn more about Business loans and how to apply for an MSME loan in detail.

What do we mean by unsecured loans?

Unsecured loans are one of the main types of credit that do not require collateral. They are also known as signature loans because they only require a signature if you meet the lender’s borrowing requirements.

Lenders may charge higher interest rates because they take on more risk when loans are unsecured by collateral.

Interest rates are higher because if a borrower stops monthly payments and defaults on an unsecured loan, the lender has no collateral to collect the outstanding debt.

In this case, lenders can choose to bear the financial loss. They can also seek reimbursement through a court decision, but they cannot seize a debtor’s resources without going through the court process.

Understanding Common Unsecured Loan Types

There are different types of unsecured loans available. The most popular choices are private loans, credit cards, and student loans. Student loans, as the name suggests, are intended to help finance the costs of college education. Credit cards can be used for day-to-day expenses or to cover unexpected expenses until you get your finances back on track.

Types of Unsecured Loans

Here are some important types of unsecured loans.

term loan

Any loan, protected or unsecured, is granted for a fixed term and must be repaid through the EMIs within this period.

Credit overdraft

Overdraft is a loan or credit delegated by the lender that can be used in amounts decided by the financial institution. The interest rate is assessed on the amount used or availed of the designated or sanctioned credit limit.

Working capital loan

Working capital loans are available to meet the daily expenses of a business and are approved based on the repayment capacity of the entrepreneur.

How to apply for a business loan?

To apply for a business loan, you can research and analyze alternative loan options that meet your needs. To apply for a business loan, go to the homepage of the NBFC or lender you wish to apply for and click on “Business Loan”.

  • Fill in all the required details, such as loan balance, employment history, annual gross sales or retention, city of residence, decades of current business, type of collateral, and mobile phone number.
  • Include information such as full name, date of birth, residential PIN, company type, business type, PAN card details, industry type, annual gross profit, balance banking and any existing EMI.
  • After submitting all of your information, a bank representative will contact you to finalize the loan process.
  • If your loan application is accepted, the approved loan amount will be deposited into your specified bank account within a specified period of working days.

If you are wondering how to apply for an MSME loan, you should note that you can follow the same process to avail an unsecured loan in the MSME sector.

Unsecured loan interest rates

Lending institutions and NBFCs offer unsecured personal loans at attractive interest rates. However, interest rates will change depending on the borrower’s portfolio and business needs.

The interest rate on an unsecured business loan is determined based on several factors such as the borrower’s financial habits, credit rating, repayment capacity, creditworthiness, annual turnover, etc.

The essential

An unsecured business loan can be difficult without a good personal credit score and proof of consistent income from your business. If a lender considers a candidate’s profile to be less creditworthy, loan agreements may require collateral or high borrowing costs.

If you are looking for a reliable lender to avail an unsecured business loan, Poonawalla Fincorp can be your ideal partner. For more details, visit https://poonawallafincorp.com.