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Crafting a Compelling Business Loan through Unsecured Financing

As an entrepreneur, what kind of loan would you prefer if you would like to apply for business loans? Do you know that even procuring unsecured loans can have major advantages for the business?

By Advertorial Desk 29 May 2024

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Winning unsecured business loan approval hinges on a knockout application. This guide packs your toolbox with the essentials to build a nice document that showcases your business's potential and positions you as a borrowing expert. Buckle up, and let's dive into the things you need to craft a loan application that grabs lenders by the eyeballs and launches you towards funding success!

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Understanding Unsecured Business Loan

A secured loan is secured against certain collateral showcased to the lender. Paying the secured loan can result in the croaking of collateral or business assets. On the contrary, unsecured loans are usually sanctioned on high risks. To carefully understand the difference, readers must consider that secured loans can be procured at low interest rates and involve longer repayment tenures. For unsecured business loans, the opposite is true.

Before we delve into the intricacies of the entire concept, we must classify:

Mortgages, car loans, and home equity loans as secured loans.
Personal loans, credit cards, and student loans remain to be the unsecured ones.

What are the benefits of Unsecured Business Loans?

As an entrepreneur, what kind of loan would you prefer if you would like to apply for business loans? Do you know that even procuring unsecured loans can have major advantages for the business? Financial consultants agree that taking an unsecured business loan for start-ups remains easy as it requires no collaterals. Businesses with small-term investments with limited assets can benefit greatly by making such loan applications. Taking into consideration unsecured loans, let’s take a quick look at the advantages:

No collateral required: No business assets are put at risk when an entrepreneur applies for unsecured loans
Faster approval process: Unsecured business loans typically involve a low processing time.
Flexibility of repayment schedule/s: This helps the entrepreneur gain a steady cash flow despite having other business liabilities.
Easier to qualify: Unsecured business loans may be easier to qualify for.

Disadvantages of unsecured loans are:

Higher interest rates and processing fees rather than secured loans,
The lower value of collaterals decides a flexible repayment tenure, although this is specific and varies from one institution to another
For some financial bodies unsecured loans could be risky
Processing of loan applications might require additional documentation

Interest Rate and Eligibility Criteria for Unsecured Business Loan:

Interest rates are necessarily higher for unsecured loans and depend on

borrower's credit score,
business history, and
financial stability

On the other hand, eligibility criteria vary from one financial institution to another. Eligibility criteria depends on

a good credit score,
a sound business plan, and
a consistent track record of profitability.

How to craft a compelling Unsecured Business Loan application

Prepare a sound business plan: A sound business plan should also include information on cash reserves and business resources.
Showcase your creditworthiness: Lenders will consider your creditworthiness and financial stability.
Provide detailed financial statements: Accurate balance sheets, well audited, and profit and loss records can help you gain a competitive advantage.
A well-maintained document showcasing consistent profitability: Submitting a well-recorded profit can help the entrepreneur gain lenders’ confidence. Tax returns should be attached to build confidence further.
Be transparent: Well-documented records and a careful business expansion plan can facilitate the entire process.

Conclusion

By following this roadmap and customising it to your unique business, you can build an application that cuts through the clutter and skyrockets your chances of landing the unsecured funding you crave. Let us tell you that procuring an unsecured loan can be easier if you explore certain non-traditional financial institutions like NBFCs. A major advantage of securing a business loan from the NBFCs includes flexibility of operation, with longer tenures for repayments. On the contrary, as a qualified entrepreneur, you can enjoy lower interest rates.

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