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If you are thinking of starting a business, it can be a daunting task to fund it to expand and evolve in a dynamic market. However, you can do so by taking an unsecured business loan. While these loans are readily available, you need to keep certain factors in mind to get an approval.

A business loan helps you borrow money from financial institutions. However, you need to repay this amount in a certain period along with interest. Besides, you don’t have to provide collateral to the financial institution when you take unsecured business loans.

Nitin Mathur, CEO, Tavaga Advisory Services, said, “An unsecured business loan or more popularly called a business loan is a loan provided without any collateral or security guarantee. Both banks and non-banking financial companies provide business loans like working capital loans, startup loans, invoice financing, equipment financing and overdraft to borrowers."

Ajay Mishra, head of business loans, Paisabazaar.com, said, “As with any loans, those planning to avail business loans should opt for a lender that provides him with the desired loan amount at the lowest possible interest rate for a comfortable loan tenure suiting his repayment capacity. As the processing of business loan applications can vary widely across lenders, those planning to avail unsecured business loans should compare the disbursal TAT (turnaround time) while evaluating options for unsecured business loans."

Besides, the loan applicant should also consider the nature of the business loan facility like term loan or overdraft/cash credit facility. For example, loans in overdraft/cash credit facilities would suit those requiring loans to manage frequent cash flow mismatches.

Loan applicants should also remember that lenders may factor in the nature and vintage of the business, a loan applicant’s credit score, business turnover, average bank balance, banking turnover, bank statements, existing obligations, etc., while evaluating applications for unsecured business loans.

Many lenders may not lend money if your firm’s cash flow is inadequate. Lenders generally evaluate the business model before sanctioning the loan amount. Therefore, you must maximize the cash flow through efficient cash management.

On the other hand, the probability of getting a loan approval increase if you present a business model with an attractive sales projection. Apart from this, you should always be prepared with a blueprint of your business model. It should have details such as how much money the firm requires for starting up and how much money will be invested towards the company’s growth from time to time, the revenue model, etc.

While availing of a loan, applicants should ideally compare the unsecured business loan options offered by as many lenders as possible. You can do so by visiting online financial marketplaces offering business loan options from a broad set of lenders.

Most lenders advance a loan amount up to 50 lakh, but some also provide up to 1 crore. The tenure of the loan ranges from 1 to 5 years. Eligibility criteria to get a business loan include the borrower’s age, business, turnover, income tax returns, bank statements for a minimum of the past six months, a credit score of the business owner, etc. However, credit history plays a decisive role in instant business loan approval. It defines your ability to repay a loan amount.

“Business loans can be availed by proprietors, partnership firms, private companies, closely-held companies and individuals. Business loans are most suited to those businesses that have just started operations and may not have any material asset to provide as collateral," said Mathur.

“A business loan can be availed for any business expansion, purchase of equipment, etc. The lowest interest rate on an unsecured business loan is 14%. The rate of interest on a business loan depends on factors like age of business, profitability, future growth prospects, a credit score of the business owned (in case of self-employed, proprietor or partnership firm)," he added.

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