Most Frequently Used Documents for Unsecured Business Loans

Financing is amongst the most important parts of running a business, and one that can propel a venture towards success. Choosing the right financing method at the right time is a crucial decision, and the entrepreneur must give careful consideration to various factors such as the industry that one operates in and the maturity of the business. Businessmen are frequently required to avail a business loan to meet immediate or long-term finance requirements. While it is easy for established businesses to avail secured loans, often a business loan is needed at the stage of setting up a venture, when one has no backing or credit history. To ensure healthy cash flow, such small and medium businesses may opt for an unsecured loan, i.e., a business loan without collateral backing.

What are Unsecured Business Loans

Unsecured business loans are business loans not backed by an asset or collateral and hence are unsecured in nature. Unsecured loans are usually of relatively smaller amounts when compared to long-term loans and are issued for a shorter period.

Businesses that require an immediate cash inflow for short term needs can avail unsecured business loans from private banks, financial institutions, and alternative private lenders. The repayment period is short, and one must aim to repay the loan within 1-3 years. Investing money in a business without any financial backing is a huge risk for the lender, and hence the cost of repayment is typically higher than that for a secured business loan.

Why Opt for Unsecured Business Loans

Unsecured business loans can infuse fresh funds into your business when cash flows need to be boosted, or for daily operations to keep the business going. They can also be used for growth and expansion, where you are fairly sure of immediate and good returns. Some examples of such expenses are the purchase of new premises, purchase of bulk inventory or machinery, implementation of new software or ERP, marketing and advertising spends, payments to suppliers and vendors, payroll expenses, inventory financing and so on.

How to Apply for Unsecured Business Loans

First and foremost, ensure you have strong business credibility to be eligible to apply for unsecured business loans. This is because it is easier for established businesses to be eligible for such loans, i.e., businesses with turnovers between Rs 50 and Rs 75 lakh per year, a minimum of three-year history and adequate profitability. Evaluate your business credibility by looking at the growth statistics for your business over the past three years. Most banks consider the business’ performance over the last three years as a benchmark to disburse the loan. The next step is to select the right bank, financial institution or alternative online lender as your loan provider. Different lenders have different eligibility criteria for small business loans online application. Do your research to understand loan amounts, interest rates, etc. In fact, many lenders now have an online eligibility calculator to tell you whether or not you are eligible for the loan, making the decision that much easier. Thereafter the business loan online application process is straightforward, provided you have the requisite business loan documents in place.

Many online vendors offer unsecured business loans online at the click of a button with some verification process. You simply have to fill up the business loan online application, upload the requisite documents, and wait for the approval and remittance. These new age lenders understand the importance of timely financing and offer collateral-free loans of up to Rs 50 lakhs, with a disbursement period of just three days.

Document Checklist for Unsecured Business Loan

The application process for availing an unsecured loan is fairly simple and straightforward. Both the business and personal credentials are verified for early-stage businesses or startups. The business loan documents generally consist of (but may not be limited to):

• ID proof, particularly copy of PAN card

• Income tax returns of previous three years

• Bank statements for the past six months

• Audited company balance sheet and P&L statement for the past two years

• Proof of continuation: Trade license, registration of establishment or sales tax certificate

• Financials such as cash flow statements, debt obligation statements

• Ownership documents such as the declaration of ownership, MOA, resolutions, power of attorney etc.

Over and above these business loan documents, different lenders may need different documentation, making it a time-consuming process. In contrast, online lenders, who get much of this process completed digitally, are quicker and pose fewer demands of you. As an SME looking for quick financing, you may stand a far better chance of getting a loan approved by such online platforms.

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Ankit Shrivastva is a blogger with an experience 8 years and worked for top organisation of India.