Whenever you plan to start your business or take it to new heights, you will consider the different options for funding. If you do not have assets or do not want to use them as collateral, you need to think of unsecured loan options. The major difference between a secured loan and an unsecured loan is the collateral. You do not need to provide any asset as collateral for the loan. It is ideal to understand the loan product and keep the below-mentioned things in mind when you apply for a loan without collateral.
- Understand the purpose: Irrespective of the type of loan product you may choose, you need to understand the purpose of borrowing. You need to find out where you will use the loan because the lender will ask you about the same. Some lenders also offer a loan for specific purposes like the purchase of machinery or to meet working capital needs, and when you are aware of what you are looking for, you will be in a better position to get the loan.
- Know the cost: Understand the total cost of borrowing and this does not mean only the rate of interest. There are costs apart from the interest rate that you should be aware of. Consider the processing fees of the loan, prepayment penalty, and any additional costs that are a part of the loan. It will increase the overall cost of borrowing and you need to plan for them as well. When it comes to the rate of interest, consider the EMI on the loan. You can use the EMI calculator to get an insight into the EMI amount.
- Research all options: Before you apply for an unsecured loan, consider all the available options. Do not choose the first lender that offers the loan. You need to be aware of all the options in the market and then make a decision. Lenders will have varying eligibility criteria and the requirement for the loan. You need to adhere to the same and then proceed with the application. Look around for low interest rates and additional offers, if any. Do not rush this process and always do your research before you apply.
- Prepare documents: Having your business documents in order means getting quick loan approval. When you apply for a loan, you need to have the documents in place. The basic documents include KYC of the partners, business registration, address proof of the business, bank statements, ITR, tax audit reports, cash flow statement, income statement, and balance sheet. You might also have to provide the projected business statements that reflect the viability of the business. If the documents are complete, there will be no delay in the loan approval.
Keep these four things in mind when you apply for a loan without collateral. You need to be well prepared to answer any questions put forward by the lender. The loan has a quick approval and will help take the business to its potential. It is one of the most preferred loan options in the country today.