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A business loan offers ample opportunity for business owners to launch and expand their business. Business loans also help budding entrepreneurs to realize their dream of starting their own business. 

Unsecured business loan

An unsecured business loan is a type of funding that doesn’t require the applicant to provide any collateral to the lender against the loan amount. Unsecured business loans are generally small business loans and offered on the basis of the balance sheet, credit score and other financial documents. Several loan schemes are available in the market, including unsecured business loans for startups. A business loan helps entrepreneurs to achieve their potential. 

An unsecured business loan can be availed for multiple financial needs of your business. Whether you want to start a business, expand your existing business, buy machinery, increase working capital, or outperform competitors.  

Features of unsecured business loans

• Borrowers can get an unsecured business loan based on their credit history, turnover, profit and business potential. 
• The business should be in existence for at least 2 years. Unsecured business loan for startups is given based on the business plan. 
• Unsecured business loan amount ranges from Rs. 50,000 to Rs. 1 crore, depending on business value, size and future plans. 
• Most lenders, especially banks, offer an unsecured business loan with an overdraft facility. 
• Unsecured business loans are extended for a flexible repayment tenure, ranging from 1 year to 5 years. 
• You can apply for the loan online. 

Benefits of unsecured business loans

Collateral-free business loan: Lenders don’t require borrowers to provide collateral to get a business loan. 

Fast procedure: The loan application process is simple and quick; the applicant needs to fill in the loan application form and submit the required documents. As the loan is collateral-free, you can apply online without having to visit the bank. 

Multiple loan programs: Lenders offer an unsecured business loan in India under several categories including working capital loan and Mudra (Micro Units Development and Refinance Agency) loan, corporate term loans, credit guarantee scheme, stand-up India scheme, sustainable finance scheme.   

Multipurpose business loan: Funds can be used for several financial needs such as initiation and expansion of business, and working capital needs, letter of credit, trade facility, purchase of equipment, export finance, and so on. 

Unsecured business loan rate of interest

An unsecured business loan rate of interest varies from lender to lender and scheme to scheme. Generally, the interest rate starts from 13% p.a. onwards.

Unsecured business loan eligibility criteria

Unsecured business loan eligibility criteria vary from lender to lender and scheme to scheme. Here are the basic criteria you will need to meet. 

• Any India citizen can apply for an unsecured business loan in India
• The business should be based in India
• Any individual aged between 18 years and 65 years can apply for the loan 
• The business should be in profit for at least the last 2 years
• Entrepreneurs should have a convincing business plan
• Unsecured business loans for startups under government schemes are customized to meet the specific needs of several businesses 
• Objective and goals should be clearly explained in the application 
• The applicant should have a good credit score
• The business plan should be neat and clean about sales and investments 

Documents required for government business loan

While documentation may vary from scheme to scheme, here are basics documents required to get the government business loan:

• Business Plan
• Photographs: 2 copies (passport-size)
• Proof of age: Passport, PAN Card
• Proof of Identity: One of - PAN Card, Passport, Aadhaar Card, Voter’s ID, Driving License
• Business address Proof: One of - Postpaid Phone Bill, electricity bill, rent agreement
• GST identification number
• Loan details 
• List of company directors or partners (for partnership firms)
• Bank proof: Cancelled/ scanned cheque, copy of the front page of your passbook
• Signature proof: PAN Card, Passport, Bank verified signature
• Latest 2 years ITR along with computation of income, B/S, P&L a/c with all schedules verified by a competent person like Chartered Accountant 
• Bank statement: Business (current account) statement for the latest 6 months
• Additional documents: 
• Sole proprietorship declaration
• In case of partnership: Certified copy of partnership deed /certified copy of MOA, AOA, and Board resolution 
• Latest 2 years partnership firm's B/S, P&L a/c with all schedules certified by a CA in case income comes from partnership firm

 Important points regarding an unsecured business loan

Age of the business: The age of the business plays an important role to get a loan approved. Startup businesses are considered to be risky due to a lack of history of business management. Whereas stable businesses with a strong history can find it relatively easy to get a business loan. Generally, lenders require a business to be operational for at least 3 years.

Credit score: As the loan is unsecured funding, credit history is strictly judged by the lender. Individuals with a good credit history are considered to be less risky borrowers. Applicants with a credit score of 750 or above are considered loan worthy. 

Income flow: Your business should be running in profits for at least 2 years along with the required turnover. 

Business plan: An unsecured loan for startups is offered on the basis of the business plan. The business plan should be crisp and convincing about sales and investments. 

How to apply for an unsecured business loan?

You can visit afinoz.com to apply for an unsecured business loan. On Afinoz.com, multiple lenders offer an unsecured business loan at competitive interest rates. Customer can check, compare and select from various unsecured loan options from those lenders. 

You can select a lender and submit your business loan application on Afinoz. Within a couple of minutes, you will get a phone call from our customer care executive regarding your application for the loan. 

Unsecured business loans are good options for small and medium enterprises (SMEs) as well as entrepreneurs. It helps business owners in launching a new business and expanding their existing business. Additionally, there are multiple programs - small business loans and large business loans - in the market to suit the specific needs of different businesses. With the right financial planning, you can grow your small business and get ahead of your competitors with unsecured business loans.