Unsecured Business Loan or Collateral-Free loans is one of the most innovative and rewarding initiatives that enable organizations to receive loans without the need of attaching any collateral or property as a guarantee against the loan. Every organization demands financial assistance and there are several financial institutions that offer some of the best unsecured business loans in the least amount of time. Since there is no need to pledge any property or asset, unsecured business loans have significantly gained a reputation among SMEs. In order to avail such a business loan, banks or financial institutions have certain criteria they need you to meet in order to qualify. Since there is no need for collateral, the eligibility criteria and documentation requirement can differ from normal, secured business loans.
That being said, it does not mean that you have to produce a seemingly endless amount of documentation in order to secure a loan. In fact, unsecured loans generally require fewer documents. As compared to loans that are secured through collateral, unsecured loans are usually quicker and easier in terms of documentation. If done right, you might not only get your loan sanctioned but also receive it within as early as 5 days!
The most essential documents you will be asked to provide are as follows:
- A completely filled application form:
The application form should be completely filled with the correct information in the required fields. Any incorrect information can make the processing time longer or even lead to disapproval of your loan.
- Identity proof:
To authenticate your identification, you will be asked to provide some form of identification proof along with passport size photographs. This ID proof can include your PAN card, passport, Aadhar card, Driver’s license, voter’s ID. Some banks or lending institutions might mention exactly what type of ID proof they need.
- Financial Documents
In order for the lender to be satisfied that the risk of you defaulting on your loan is minimized, they would want to take a look at certain financial documents. The few documents supporting this are:
Bank statements– Latest 6-months bank statement showing that you have sufficient funds.
ITR statement– Even though this is a business loan that you’re applying for, the lender will still need to know about your income tax returns in order to sanction your loan. They want to know that all your taxes have been paid and there is no tax evasion.
GST Certificate: Submitting GST certificate for the loan application is one of the mandatory requirements. Usually, they might expect you to provide GST certificates for the past 3 years.
- Company’s Balance Sheets: Since this loan does not require you to provide any form of collateral, the risk of you defaulting on the loan is perceived to be higher by the lender. To reduce this risk, they need to go over your company’s balance sheets and books of accounts to know how your business has been doing financially, to check if and how much debt it reflects, its revenues and profits, etc.
Apart from these essential documents they may also ask you to provide your Company’s registration certificate under the MSME, shares allotment proof, and address proof.
There may be other documents as well that any bank or institution may ask from you. The documentation procedure is primarily dependent on the individual banks and institutions and the procedure is independent of the procedure as used by other banks.
Here are a few tips to increase your chances of receiving an unsecured business loan with reduced interest rates:
- There should be a comprehensive idea of the business with a detailed business proposal and project report.
- You should compare the loans with several banks and financial institutions to get the best deal for your organization.
- You should always maintain a good credit score to be able to get unsecured business loans and hence, the attempt should be inclined towards keeping the score decent.
To summarize this article, it can be said that unsecured business loans come with minimum documentation for the evaluation process that includes form filling, submitting photographs, identity proofs, financial documents and all that is required by the bank to proceed.
Similarly, the company’s MSME registration proof is also required along with share’s allotment proof, address proof and previous balance sheets of the company.
Applying for an unsecured business loan need not be a hassle anymore. Being prepared with the necessary documents and by fitting in their eligibility criteria you can receive a loan in hardly anytime.