Unsecured financing has lately become an essential contributor to the funding needs of mid and small-sized businesses. They are not only easy to avail but are also available in high quantum. Given the increasing credit gap of the MSME sector, which stood at $380 billion in 2020 as per World Bank estimates, the availability of business loans without security eases fund sourcing substantially.
Nevertheless, the lack of collateral requirement also exposes lenders to a higher risk, thus attracting increased charges. You can, however, secure low rates along with other attractive features by choosing the right lending institution and funding option. Below given are a few tips that will help businesses apply for an unsecured business loan conveniently with improved chances of approval and favorable terms.
Chart Your Business’s Cash Flow Projections
Determining the yearly cash flow projections is essential when availing of a business loan without security because it helps the lender assess your repayment capacity. It is essential to have a sufficient inflow of cash every month so that you are able to pay your EMIs without any delay.
If required, you can also present the previous few years’ cash flow to establish business stability, assuring the lender of your suitable repayment capacity. Note that one of the critical parameters when assessing applications for collateral-free loans is the sufficient availability of income throughout the year. Thus, along with the cash flow projections, you can also keep Income Tax Returns and bank statements of the previous few years to establish income stability.
Check Your Credit Score
To avail an unsecured advance like a business loan without security, the ideal credit score requirement is above 750; the higher the score better the reliability of an applicant in the eyes of a lender. So, check whether your personal as well as your business’s credit score. You can also plan ahead to build high creditworthiness by adopting the following few ways.
- Make timely repayment of loan EMIs and credit card bills, and in full.
- Utilize not more than 30% of the total available credit.
- Avail a balanced mix of secured and unsecured loans.
- Keep your fixed monthly liabilities, including the one yet to be created, at not more than 50% of your gross monthly income.
- Avoid making multiple loan applications within a short span, to eliminate the chances of several hard inquiries which affect the credit score negatively.
Create A Sound Business Plan
You must also create a concrete business plan when seeking to avail yourself of a business loan without security. While it is not a mandatory requirement among NBFCs, having such a plan in place weighs your application with financial clarity.
Such a plan can include a detail into the growth strategy of the business a few years down the line, its purpose of operation, sources of revenue generation, present as well as future market predictions, investment plans, and such other specifications that would benefit your business in the long run.
Research On Available Financial Institutions
Next, you must also research the available lending institutions in the market. While narrowing down to one lender that offers the best features is a good idea, you must also look out for alternative lending institutions to back up your financing needs as and when the business idea is acceptable.
Various reputed lenders provide collateral-free business loans at favorable terms to make financing affordable for borrowers. One only needs to meet the needed eligibility and document requirements.
It is also essential to select the lender based on the interest rate levied as business financing is often high-value, indicating a high-interest liability as well. Thus, even a minute difference in the interest rate can result in a significant difference in the overall loan liability.
Apply For A Business Loan Without Security
Once you have decided on the lender, you can proceed to apply for a loan. Make sure that you meet all the lender-specific eligibility requirements to improve your chances of loan approval.
They would include factors like an individual as well as the business’s credit score, minimum and maximum age requirements, years of operation, income, etc. You must also keep the required documents handy to streamline loan processing post the application.
With all these tips in mind, you can proceed to work upon your plan of availing of a business loan without security. Before applying, you can also estimate the EMIs payable to decide on a suitable loan amount and repayment tenure. Once you confirm the loan’s affordability, choose to send an online application for quick loan processing.
If you like the article then check Techdee for more informative articles.