UNSECURED BUSINESS LOANS EXPLAINED

by | Nov 11, 2020 | 0 comments

By Author: finway

What is an unsecured business loan?

Unsecured business loans allow an individual to borrow money for their business without the need for collateral unlike secured loans which require loan against an asset like a property or a vehicle, unsecured loans are not guaranteed. Instead, the individual gets approval for an unsecured loan on the basis of her or his creditworthiness or credit score.

What are the interest rates for an unsecured business loan?

The interest rate can vary depending on the financial institution or bank an individual goes for.

The interest rate however depends on factors such as the applicant’s financial history, credit score, repayment capability, annual turnover, creditworthiness to name a few.

What is the purpose of taking a business loan?

Some of the reasons for taking a business loan can be:
● Starting a new business
● Maintenance and Expansion of existing business
● Purchase of Machinery or plant
● Investment in infrastructure
● Hiring more staff
● Maintaining Inventory etc;

What are the different types of Unsecured Business Loans?

● Working Capital Loan- which can be availed to meet day to day expenses of an already existing business and is approved on the basis of the applicant’s creditworthiness and capability to repay.
● Overdraft- which has a credit limit assigned by the lender and can be availed in parts as defined by the financial institution or the bank.
● Merchant Cash Advance- which is a type of cash advance based upon the credit card sales deposited in the applicant’s account and the loan amount is decided on the credit card swipes or the monthly volumes of the business.
● Micro Loans- are generally offered by Microfinance Institutions (MFIs) to meet the instant card requirement of the applicant and depends on the business requirements.
● Loans Under Government Schemes- There are several government-initiated loan schemes which can be availed by small business owners and are at a comparatively lower rate of interest. Some of the schemes are Mudra Loan, Start-up Scheme, Prime Minister Employment Generation Program (PMEGP), Stand up India, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), etc.
● Business Credit Card Loans- where entrepreneurs can apply for business loans against their business credit card and the loan amount is sanctioned by the lender.

What is the eligibility criteria e for an unsecured business loan?

There are some common eligibility criteria followed by all financial institutions and banks for approving an unsecured business loan:

● The applicant should be a citizen
● The applicant should have no criminal record
● The applicant should be 21 years and above at the time of loan application, and maximum 65 years old at the time of loan maturity.
● The credit score should be 650 or above.
● Minimum 1 year of business existence with signs of profit.
● Total business experience of at least 2 years and in the same field for which the loan is applied.
● The business location should be the same for the last 1 year
● The applicant should have a regular source of income as shown in bank statements and salary slips.


0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

Other posts you might like