Business loans have undergone a drastic transformation in India. From the exorbitant rates charged by unorganized lenders to the prolonged loan approval processes by banks and nowadays the popular fintech companies with their online, prompt loan sanction. Currently, an unsecured business loan can be availed without the need for collateral from NBFCs, subject to submission of relevant documents and fulfillment or certain pre-requisites.
With the adoption of cutting-edge technology, fintech companies are sanctioning unsecured business loans within a week’s time, after due diligence of the documents and subject to the following eligibility criteria:
- Age of the business owner – Lenders generally grant loan only if the applicant falls in the age group of 25-65 years of age. This would help the lenders gauge the repayment capability and estimate the loan tenure.
- Operating vintage – NBFCs generally mandate a business that has been in operation for a minimum period of 3 years. This helps evaluate the feasibility of the business model and the stability of the revenues. Further, the business should be viable with growth capability. Lenders would grant the business loan amount based on the age of the business factor.
- Books of Accounts – The main focus area for an NBFC is the repayment capacity of the borrower. Hence it is critical for the lender to scrutinize the books of accounts prior to disbursement. The lenders would expect accurate books of accounts that portray a true picture of the financial position rather than a window dressed scenario. A healthy cash flow, low leverage, increasing revenues, and decent profits are factors considered by the lender. This would also reveal the operating structure of the entity, whether proprietary concern, partnership firm or a company.
- GST Returns – This is a vital document as it serves the dual purpose of ensuring the business entity has been regularly paying taxes as well providing a confirmation of the revenues. Every lender would like to be associated with a law-abiding business unit.
- Credibility factor– The credit score or CIBIL score of the individual is a very important factor considered by NBFCs before loan sanction. The credit score is an indicator of credit standing which depends upon a good repayment track record and credibility.
- Funds utilization – The borrower must commit to the lender that the business loan is being taken solely for business purposes. The lender may not sanction loan if the borrower is using additional unsecured business funding to pay off existing liabilities. The lender would permit use of funds for capex, inventory purchase and other causes which fall in the gamut of operational activities.
- Identity Proof – This proves the identity of the individual loan applicant. This document could be either the PAN card, Aadhar Card, Passport copy, driver’s license, voter’s ID.
- Address Proof – This validates the address as the same as that submitted in the loan documents. This again could be the Aadhar Card, Passport.
- Passport Size Photograph – The loan applicant should at least provide 2-3 passport size photographs.
- Bank Statements – 6 months’ bank statements are mandatorily required by the lenders. There should also be a sufficient bank balance, which the lender would confirm. This shows the borrower in a positive light that with a healthy cash balance, the chances of default are low.
- ITR Statement – The lenders would insist on the business owner’s income tax returns to confirm compliance with IT laws.
Business loans can boost business performance by providing timely financial assistance at competitive interest rates. Further, with expert advice from the financing company, truly, unsecured business funding can prove to be a game changer for a small business venture.