Loans that require no collateral are one of the best options for business financing. Here are some ways to avoid making mistakes while applying for them to get your loan approved faster.
You can apply for secured or unsecured business financing when your venture needs an infusion of funds. While secure business loans need you to pledge your assets or get a guarantor who co-signs your loan agreement with you, unsecured business loans have no such conditions. Also known as Collateral Free Loans, they are a convenient and easy option for small business financing. Since these loans rely on your ability for repayment, there are a few factors that can affect the acceptance of your application.
Given below are mistakes that you should avoid to ensure that your loan is approved quickly:
1) Not Knowing Your Credit Score
Credit score plays an important role in getting your application approved for a collateral-free loan. If your credit score is too low, your application may get rejected. This is because your lender attributes your ability to repay the loan based on your credit history and past repayment behaviour. A good credit score increases your lender’s confidence in you as a creditworthy borrower. A high credit score also ensures that the business loan interest rate offered to you is lower.
2) Failing To Have A Purpose
If you don’t have a concrete plan on how you will utilise your loan, your lender will hesitate before sanctioning it. So, ensure that you have a detailed strategy outlining how you will utilise funds. Also, show the expected increase in business income or revenue that the loan can generate.
3) Indulging In A Major Financial Change Right Before Your Loan Application
Stability is key to business growth and operations. Hence, it is no surprise that it also has great importance while you apply for business loans. For example, if you diversify when your business is unstable, or change your business vertical before your loan application, a lender may not approve it. Most lenders need your business to be at least 3 years old before they sanction your loan. This provision verifies your business stability.
4) Lacking Knowledge Of Eligibility Criteria And Documents Required
Don’t apply for business financing without knowing what the eligibility criteria or required paperwork is. Remember that you can only secure a business loan if you fit the profile. You should be a business entity such as a partnership or private company, or be a self-employed professional or a self-employed non-professional. Apart from this, furnish proof of business, financial documents and bank account statements, passport size photographs and other KYC documents such as identity proof, address proof, etc.
5) Skimming Over The Loan’s Terms
This is a common mistake made by business owners. It is crucial that you read every term and condition before you sign the loan agreement form. This will contain details about your fees and charges, tenor and EMI schedule among other things. Not paying attention can lead to you paying more than you calculated for, and can also cause delays in EMIs as well as other penalties. Be clear about the loan you are signing up for and ensure that your lender has no hidden fees or charges.
Collateral-free loans not only save you time and stress of pledging valuable assets for business financing, but also make your application easier and ensure that your loan gets granted faster. If you’re looking for the right collateral-free loan, consider Bajaj Finserv. Their Business Loan not only offers you low interest rates, but also other advantages like quick approval and disbursal of your loan, a line of credit and an online application process.