An unsecured business loan is a business loan without security for which there is no need for collateral. Assets are pledged as security for a secured loan, allowing the lender to sell the pledged assets if the loan is not paid back. Whereas in the case of unsecured business providing collateral is not necessary.
The most crucial aspect a businessman considers when applying for a loan for his enterprise is its eligibility for a business loan. Notably, the lender establishes the unsecured business loan eligibility criteria based on which they decide whether or not the borrower is eligible for a loan. The borrower must satisfy this crucial requirement for the loan to be approved.
In layman’s terms, the criteria that determine a businessman’s and his company’s financial stability are known as business loan eligibility. The CIBIL score, bank statement, ITRs submitted, turnover, and vintage of the business are among them. Notably, each lender has different requirements for eligibility, therefore before applying for a loan, the borrower must review that lender’s specific eligibility list.
Let’s explore the criteria for unsecured business loan eligibility:
1. Credit score history
The primary criteria determining loan eligibility is the credit score history, or CIBIL score. It is largely used to determine the borrower’s eligibility. An applicant is given a closer look by the lender if the business owner has a high CIBIL score. However, if it falls below the required level, the loan application is immediately turned down.
Additionally, if the CIBIL score is high, the risk is low, hence, a business loan without security has lower interest rates. Therefore, evaluate your CIBIL score and take steps to raise it if necessary.
2. Performance of the business
Evaluating a company’s performance helps determine its income. It is a crucial issue because a company with poor earnings won’t be able to pay back the business loan. So, a key factor in determining a firm’s unsecured business loan eligibility is the financial success and overall performance of the company. Lenders assess the business owner’s bank statement and filed ITRs for this purpose.
Most lenders, especially banks, want collateral to lower the risk of the company loan. They provide secured loans and ask borrowers to pledge an asset as collateral to obtain a loan for their company. However, in case of an unsecured loan, it is a business loan without security. In India, NBFCs mostly offer collateral-free business loans to small business owners who cannot obtain a loan with collateral.
4. Business Vintage
To qualify for an unsecured business loan, business vintage is equally crucial. Loans are typically given to businesses that are older than two years. Businesses that have been in existence for a while can provide the ITR, a bank statement, and other evidence of their financial performance and stability. Therefore, unsecured business loans are typically not given to startups.
The majority of lending institutions take the company’s age into account when considering loan applications. Therefore, if the company has been operating for at least two years, the businessman must apply for a loan for the business.
5. Turnover of the Business
Some financial entities, both banking and non-banking, have a minimum turnover requirement. Your unsecured business loan eligibility is determined by the company’s yearly revenue. You must have a high turnover if you are willing to take out a long-term, large-amount company loan. The turnover will determine the loan amount, and as a result, it will have an impact on your eligibility to receive the loan.
6. Document Necessary
The lenders request evidence of your identification, your company’s history, your income, and your address. Therefore, you must attach all relevant documents to the back. If you are unable to present the paperwork linked to the aforementioned proofs, your unsecured business loan application may be turned down. Therefore, the paperwork may also have an impact on your ability to obtain a bank loan for your company. However, some financial institutions offer business loans without ITR.
You are aware of every aspect affecting your eligibility for a business loan without security. Make sure you abide by all the requirements before submitting an application for a business loan. If you meet all the requirements, that is criteria for an unsecured business loan eligibility you have a very high probability of being approved for a business loan. Before submitting the business loan application to the bank, make sure you read all of the lending institution’s requirements and satisfy them.