An unsecured business loan from a fintech lender comes in handy for an SME unit or a small business entity that is trying to grow its business and does not boast of a significant asset base or a long operating vintage.
Lenders, in turn, conduct their in-house due diligence and underwriting process and extend online credit to eligible borrowers, who fulfill the stipulated conditions. However, there are some tips one should keep in mind before applying for an unsecured business loan online.
Some important considerations to keep in mind to obtain a business loan online are
- Clarity of purpose: This is critical. Since the business loan is being taken to fund business activities, one must have sufficient clarity on the scope and nature of the business. Details like nature of operations expected turnover, the quantum of investment, the loan amount, the target customer base and the pricing structure should be worked out and ideally incorporated in a business plan. This information is vital before one approaches a fintech lender. Further, one needs to believe in the potential success of the business and be able to convince the lender of the viability of the business, prior to obtaining a business loan.
- Lender’s Condition: A good credit score and strong business performance will guarantee loan approval in most cases. However, every borrower must remember that lenders would conduct their in-house evaluation of default risk before sanctioning a business loan. Since, NBFCs grant loans without collateral cover, they would thoroughly check the repayment capability of the borrower.
- Get expert advice: An accountant’s advice on the amount of business loan required, validated by a detailed business plan would help accurately determine the loan needs of the business. One should not blindly borrow the amount one is eligible for or a random, ad-hoc amount as there is a cost associated with the funds by way of EMI repayment
- Credit Score: A good CIBIL score is a basic condition to obtain a business loan. One’s credit standing can help obtain a business loan quickly, without delay.
- Business rapport with the Lender: The fintech lender is also a stakeholder in the business. Hence, upon approval of the business loan, one must maintain a healthy relationship with the lender in case of future loan requirements. Since SMEs grow gradually, they require several rounds of funding to meet the various business needs at different stages of the business. A good relationship with the lender can help obtain add-on facilities for an existing loan as well.
- Bank Statements: Most fintech lenders insist on the production of the bank statements of the last 6 months so as to verify that the applicant identity, whether the business owner is eligible to receive the business profits in the applicant’s bank account. It also serves to confirm the income source and income nature of the borrower and help the lender decide upon the loan amount and tenure.
- GST Returns with financials: The GST returns confirm the status and legal validity of the business, the nature of operations, the regularity of income, tax compliance and the revenues achieved by the business unit. The balance sheet helps the lender determine the net worth of the business. The profit and loss statement help evaluate the profitability and repayment capacity of the borrower.
- Credit Score in an individual capacity: Lenders also study the credit history of the business owner in his or her personal capacity. A CIBIL above 750 is considered as good.
- IT filings of Business Tax and Personal Tax: Lenders require documents like personal tax, business tax or income tax receipts to be uploaded during the application process.
- Period of business operations: The lenders would ask proof of the operating vintage of business operations. This would be evident from the date of incorporation or registration of the company or partnership firm respectively. Most fintech lenders insist on a vintage of 3 years. However, sometimes, lenders extend business loans to SMEs operating for lower than 3 years, based on the business model and the revenues clocked. Further, a loan is granted if audited financials of 2 years are produced.
- Purpose of the Loan: The approval of the business loan is subject to convince the lender of its utility and requirement for the conduct of business operations.
- The legal structure of the business: The SME must disclose details of the operating structure, whether the company, partnership firm or sole proprietary concern with details of the directors, partners etc. Whether the promoters are directors or partners in related sister concerns etc.
Fintech NBFCs have clearly stayed ahead of the curve in the online unsecured business loan space for SMEs. By enabling online application and instant approval with the facility of digital signatures, fintech lenders have revolutionized the lending space.