A HANDY READY RECKONER ON WHAT LENDING INSTITUTIONS LOOK FOR TO DECIDE LOAN ELIGIBILITY FOR SMEs
Raising funds to start a new business or expand an existing one, is a prime requirement. If you are a start-up or looking to expand your existing business there are numerous options for you to raise the capital. There are different types of loans that can be availed from the banks for the aforementioned purpose. These loans are usually availed in the form of a secured or an unsecured loan. Loans that require an individual or a business to provide security for repayment are called as secured loans. However, businesses or individuals who wish to procure loans without providing security can avail an unsecured loan as these are collateral-free loan. Ideally banks grant an unsecured loan to its existing customers and hence require minimal documentation and the process is hassle-free.
An unsecured business loan is an efficient alternative for individuals or businesses that do not possess many assets or do not wish to put up collateral in order to secure a loan. These loans are pre-approved loans in the form of working capital loan, SME loan, personal loan for business, loan for retailers and can be availed for a specific quantum of time.
Given below are some of the operations for which the company or individual can procure a working capital loan.
- Purchasing raw materials
- Managing day-to-day inventory
- Payment for utility costs like rent, electricity bills, employees’ salary
- Finance payment that may be blocked by debtors
- Payment towards material suppliers in advance
- Maintaining adequate level of cash flow
When is a working capital loan needed?
Occasionally small businesses fall short of finances and do not possess adequate assets to meet some of their routine business expenses, on account of various reasons. Such businesses can opt for an SME loan that is specifically designed to cater to small-to-medium business enterprises. Few businesses have an unpredictable income or in the case of manufacturing companies, may be dependent on the seasonal sale of the retailer. They may undergo production but the sale of their goods by retailers is seasonal. These companies stand in need of finances to make sure that their daily operations go smoothly and can choose to apply for a loan for retailers. Companies with a good credit rating can usually apply for these loans without security i.e. Collateral free loan.
Advantages of a Business Loan:
· Faster application process.
When it comes to an unsecured business loan, the application process is faster as the bank does not need to evaluate your collateral and determine its value. Instead, the bank can focus on your business credit report, monthly sales etc., which makes the process relatively faster than the process for other loans. Majority of banks offer fastest business loan. The loan seeker must consider all the financial aspects and bank policies before applying for a loan.
· No collateral required.
A lot of small businesses of start-ups do not possess collateral against which they can avail a loan and hence are ineligible for a secured loan. For these businesses and individuals, an unsecured loan in the form of loan for small business is a pertinent solution as the banks do not require collateral to grant the loan. The bank will however assess numerous factors like business credit report, monthly sales, business plans, etc. To determine the eligibility for an unsecured loan.
If you wish to avail a business loan given below are some of the eligibility criteria that you must fulfill
