Small businesses lack the abundant financial resources to fall back on once their cash flow begins to run dry. Businesses frequently need to resort to unsecured loans, as they do not have the requisite collateral to take secured loans from banks and other traditional non-banking financial companies (NBFCs). Their business cycles are often unpredictable or erratic in nature, and whenever their large customers delay payments, the small businesses supplying goods and services to them encounter a serious cash flow.
Therefore, a small business should always keep itself well prepared before taking an unsecured business loan. Thankfully, several avenues are available for a small business to avail unsecured loans from. The last few years have seen the entry of technology-based FinTech companies that use the best of algorithms, Big Data and data analysis techniques to determine the unsecured business loan eligibility of a small business.
Such companies understand the business requirements of SMEs and devise their loan approval processes to suit their needs. They do not suffer from legacy infrastructure inhibitions as banks, and therefore use innovative thinking in designing new age unsecured business loans for small businesses. You need not visit their branches with piles of documents, but can instead apply for unsecured loans online through their portal or through a mobile app. The loan processing is done within minutes, and once approved the unsecured business loan amount is credited into the bank account within three working days. There is complete transparency maintained in the entire process and no hidden charges are ever levied. Besides, you get complete flexibility in the unsecured business loan repayment process.
With technology at their disposal, small businesses have wide choice in terms of unsecured loans, and they can choose the most suitable product at the most competitive interest rates. Unsecured loans are available to meet working capital needs and those that let you expand your business online. Cab drivers on taxi aggregator platforms can look forward to taxi finance, while merchants who receive payments through credit/debit cards can avail merchant cash advance to sustain their cash flow. All these products have been designed keeping in mind the business requirements and repayment abilities of SMEs. However, all businesses need to keep certain dos and don’ts in mind in order to increase their chances of getting unsecured business loans.
The tips listed below will enable SMEs to avail unsecured business loans without affecting their business cycles. Let us see how:
1. Work towards improving your credit score: Your credit score is one of the foremost things a lender wants to verify before considering your application for unsecured loans. Remember that the credit score refers to both your personal score as well as the one belonging to your business. Make it a point to repay your unsecured loans on time as timely repayments help strengthen your credit rating. Moreover, it is better to keep taking unsecured loans regularly rather than not taking them at all, as this helps build confidence in the lender’s mind and impacts your credit rating positively. Take unsecured loans only for the amount you really need and never overestimate your requirements. Not repaying an unsecured business loan would not only be detrimental to your credit rating, but would also trap you in an unending debt cycle.
2. Accurately estimate your business requirements: Several statistical methods are available that will enable you to calculate your requirement for unsecured business loans accurately. It is wise to use them rather than making wild guesses on the unsecured business loan amount. For instance, if you are short on cash flow, you must ascertain how much loan amount would suffice, as also the tenure for which you need it. Besides, unsecured loans come at higher interest rates than secured loans and should therefore be opted for after careful consideration. Both overestimating and underestimating your unsecured business loan need could hike costs and be detrimental to your business.
3. Keep your business documents organised: Keeping your business documents such as bank statements, business receivables, invoices, tax statements, identity proofs, previous loan statements and letters of incorporation neatly organised would help speed up your loan application process. Also, keep scanned copies ready, as most FinTech lenders have an online loan application process and they only require digital copies of these documents. You should be able to make a presentation regarding your business need any time, and if required be able to upload documents on a lender’s portal in a snap.[Very informally framed!] A neatly organised business creates a favourable impression in the lender’s mind and convinces him about the genuineness of your unsecured business loan application.
4. Try maintaining a healthy cash flow: Unsecured loans should not just be taken when you are severely short of funds. Instead, you can look for it even when you have sufficient reserves, as you could use the unsecured business loan for funding business expansion. Such a strategy would enable you to maintain a healthy cash flow and show your business in positive light. Unsecured business loans, when taken for the right reason and for meeting genuine cash flow needs, are never looked upon with suspicion by new age FinTech lenders as they believe in supporting small businesses in their journey towards growth.
5. Give the right reason for seeking unsecured loans: You should always quote the right business need for availing unsecured business loans. For instance, if you need unsecured loans for purchasing new equipment, then state so upfront. Never try to create unnecessary hype around your unsecured business loan requirement. Also, never try to divert these funds to some other business need. Such a practice would not only create repayment problems, but would also trap you into seeking repeated credits.
As stated above, small businesses regularly need unsecured loans to fund their business needs and to seek avenues for growth. Bearing this in mind, SMEs like you should always keep your business organised and maintain fair business practices to be able to secure such loans when the need arises.