As a business owner, it is important for you to understand the different types of funding options in the market, if you are looking to grow your business fast. A business loan can be of two types- secured and unsecured. Both types of loans can help your business grow, but they come with different terms and conditions. You can choose a loan option based on your exact business needs and repayment capacity.
Secured and unsecured loans
A secured loan is one that requires you to hypothecate an asset in exchange of the funds you will get. You can use any asset for this purpose, like a house, land, vehicle etc. You will be required to hypothecate the asset with the lender and the loan amount will be based on the market value of the asset. Usually, the loan amount can be about 60%-70% of the market value of the asset. The property will be transferred back to you after the entire loan is repaid.
An unsecured loan, on the other hand, is a loan where no security or collateral is required. You do not need to hypothecate any asset with the lender to get access to funds. You will receive funds based on your profile and credit score.
The eligibility criteria for a business loan vary from one lender to another. You can get information about the same online. So, compare the eligibility criteria and then apply for a loan that meets your requirements best. The basic eligibility criteria for most lenders are given below:
- The applicant should be between the age of 24 years and 65 years.
- The business should have been profitable for the last two years.
- There will be a minimum annual income requirement.
- Applicants will need to provide income statement and ITR for the past two years.
Applicants need to provide the below-mentioned documents with their application form:
- Identity proof
- Address proof
- Financial documents for the last two years
- Bank statement for the last 6 months
- Projected turnover and current year performance
- 2 passport-size photos
- In case of a secured loan, you will be required to provide documents of the property you wish to offer as collateral
Ways to improve your eligibility for a loan
Follow the below-mentioned tips to improve your chances of a business loan approval.
- Check your credit score before you make an application. Go through your credit report from time to time, to ensure that there are no errors in it. Your credit score will have a significant impact on the loan approval. Also, late payments and defaults can lead to a bad credit score. Hence, ensure that you maintain a good financial track record at all times.
- Ensure that the documentation is complete. If you do not provide the necessary documents, your loan application might get rejected. When you make a loan application, you also need to ensure that the application form is duly filled. If any additional documents are required, the lender will ask you to provide the same, and you need to adhere to it. If your documentation is complete, the loan application will be approved in no time.
- If your loan application has been rejected in the past, you need to identify the reason for it and make a fresh application. There can be many reasons behind a rejection and it can lead to a decline in the credit score. Also, making multiple loan applications can reduce your chances of getting the loan approved.
So, always look for a financial institution that offers quick service and a low interest rate. Reliable financial institutions in the country offer loans to all kinds of businesses and try to build a good long-term relationship. If you want to take a business loan, you need to monitor your transactions and credit score, so as to increase the chances of approval. Consider all the options available in the market and then make a decision.
Before applying for a loan, identify the purpose of borrowing and the amount of funds you need. Based on the same, you will be able to make a loan application that gets processed and approved in no time. When it comes to a business loan, there are no restrictions on the end use. The lender will not ask you to provide details about where or how you intend to use the money. You can also use the EMI calculator to get an estimate of the amount of EMI payable on the loan. The calculator is usually available online for free. All you need to do is provide the loan amount and tenure to get a quick estimate. You can change the inputs until you reach an optimal output. The loan can help take your business to new heights. So, prepare a convenient repayment schedule to ensure that the loan is paid off on time.