Sunday, December 30, 2018

What You Should Look for in Unsecured Business Loans




The unsecured business loan is a boon for the small business that cannot provide adequate collaterals or guarantee. While approaching banks or NBFCs for an unsecured business loan, the applicant has to look for overall value proposition he or she receives rather than the only interest rate.


Rate of Interest


The rate of interest is decided based on the internal policy of the bank or NBFCs. Apart from the policy, the financial profile of the individual also plays crucial role in deciding the rate of interest. If your CIBIL score is higher, you will be offered a lower rate of interest.

Moreover, you should ensure that loan is granted to you on reducing balance basis. It ensures that you will pay the interest only on the remaining principal amount. If you are charged a flat interest rate, you will end up paying the excessive amount of interest, even if the notional interest rate is lower.


Loan Processing Time


There are instances that banks take unusual time to process the unsecured loan application. For any business, time is money. The excessive paperwork and lengthy process eventually result in loss of business opportunity. The minute lower interest rate may prove costly if you cannot achieve the desired goal.


Processing Fees


While every bank and financial institute charges processing fees for a loan to cover administrative expenses, it should be reasonable. Some banks charges fixed amount as processing fees irrespective of the loan amount, while the others charges as a percentage of the loan amount. 





Many banks waive off the processing charges for a small loan amount. If you have an existing relationship with your bank, you can negotiate with the bank to waive off or reduce the processing fees.

Loan Amount


The unsecured business loan carries a higher risk of default. Higher the amount, higher the risk. After a certain threshold, the interest rate increase to cover higher probability of default. 


You can also opt for partial collaterals to get a better interest rate on your overall loan amount. Based on your business vintage and historical payment records, you can negotiate a higher amount loan with your bank.

Tenor Granted


The tenor is generally decided based on the purpose of the loan. For example, the tenor for a working capital loan is usually one year, while the same for machinery may extend up to five years. Higher the tenor, higher is the risk of capital repayment. You can review your overall financial cash flow to evaluate ideal tenure for your unsecured business loan.


Prepayment Charges


In case you want to prepay your loan earlier than original tenure, many banks apply prepayment penalties. It is advisable to check with your bank regarding prepayment charges in case you intend to repay earlier.


Flexibility


In real terms, it is not only interest rate that decides the cost of fund for applicants. Many reputed NBFCs like Bajaj Finserv provides flexible tenor and repayment options on business loan application. You can also opt for Flexi facility instead of standard EMI repayment. 


You can also get pre-approved offers that gives you instant loan approval. Under the Flexi facility, the interest is charged on the amount that you have used. Whenever you have an excess fund, you can repay your loan to reduce the interest cost. 

Moreover, you are obliged to pay the interest amount only on a monthly basis. You can repay the principal amount anytime within the overall tenor granted to you.


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