An entrepreneur with big goals needs an unsecured business loan to reach a financial milestone in his business. An unsecured loan assists you in meeting all of your business’s financial needs for a variety of goals like expanding your business, raising working capital, purchasing new machinery, and so on. Borrowers are not required to present any collateral or security for the unsecured business loans issued by banking institutions. Read further to know more about unsecured business loan interest rates and how you can avail it.
Tips to avail of an unsecured business loan at a low-interest rate
To obtain low-interest business loans, you should take a look at the following tips and techniques:
- Increase your credit score and maintain your credit history. A score of 750 or above is considered an excellent score.
- Maintain financial stability and create a record of good loan payback.
- Pay your bills, loan EMIs, and credit card payments on time without any delay to improve your creditworthiness in the eyes of the lender.
- Keep a steady source of income or salary credits.
- Instead of a short-term business loan, choose a longer tenure. It makes it easier to manage your finances.
- Keep your old bank accounts and credit cards open to create a balance of the secured and unsecured loan.
- Apply for a loan from a reputable commercial or public sector bank. Always check the reliability of the lender.
Factors that affect unsecured business loan interest rates
The following are the factors that affect the interest rate of unsecured business loans
Kind of business
The interest rate on your business loan is determined by the kind of your business. The loan is usually classified as a priority sector or a non-priority sector by the lender. The interest rate for loans in the non-priority sector is higher than for loans in the priority sector.
Operational years of your business
The longer your company exists, the better it is for you. It shows that your business has stability and can make profits. The longer you are in business, the better are your chances to obtain an unsecured business loan with cheaper interest rates. Regardless of the type of business, your business should exist for a minimum of two years.
Your company’s monthly turnover determines whether it is profitable or not. It is important while evaluating your eligibility for an unsecured business loan. Maintaining consistency in your monthly turnover is critical because it assists the lender in determining the loan amount and payback terms.
Your credit score is based on your credit history, and how punctual you are in paying your EMIs and dues. It measures your creditworthiness. Paying your bills, payments and EMIs on time will ensure an excellent credit score. A good credit score helps you in gaining extra benefits such as lower interest rates and flexible repayment arrangements. 750 or higher credit score is generally regarded as an excellent score to obtain loans.
Type of Lender
Different lenders offer different interest rates on unsecured business loans. Banks often offer lower interest rates for unsecured business loan than Non-Banking Financial Companies (NBFCs), Small Finance Banks (SFBs), or Micro Finance Institutions (MFIs).
What are the requirements for obtaining an unsecured company loan?
The following are the parameters for unsecured business loans:
- You should be of Indian origin.
- Your company should have been in operation for at least two years.
- You should be between the ages of 24 when applying for a loan and 70 at the loan’s maturity.
- You should be self-employed, which means you should own a business.
- Your credit/CIBIL score should be at least 685.
What documents are required?
To obtain an unsecured business loan, the lender will require you to submit the following documents:
- Borrowers’ and guarantors’ KYC documents
- Bank statements from prior commercial transactions
- Documents demonstrating your credit history
- Returns of GST for the fiscal year
- Business ownership documentation, as well as
- The shareholders/partners list (if applicable)
If you want to expand your business, unsecured business loans are always there to assist you. Unsecured business loans for start-ups in India are particularly beneficial. An unsecured loan does not require security to secure the borrowed amount. This loan is issued based on creditworthiness and income. A high credit score makes it easier to obtain an unsecured loan. Because there is no collateral, this sort of loan is less hazardous for borrowers.