It’s difficult for businesses to stay afloat in the market and continue to grow if they don’t have simple access to capital. Financial institutions understand this, and to aid the business owners, they have come up with an unsecured business loan. However, to get approval for this, you must be aware of the factors that influence your loan application.
Age of the Borrower:
When it comes to unsecured business loan approval, whether you own a partnership firm or an LLP, your age is always a factor. The lender uses your age to determine your income potential. Individuals above the age of 60 or 65 are thought to have lower earning potential than those under the age of 60. As a result, several financial institutions have set their minimum qualifying requirements to be between the age of 21 years and 65 years. If you are under this age limit, you will have no trouble getting a loan for your business.
Consider the type of business you are in if you want your loan process to go easily. The types of industries that most financial institutions lend to are listed on their websites. Some of the most common industries to which financial institutions lend are chemicals, pharmaceuticals, IT, packaged foods, and a few more. Make sure you are checking the lender’s website for this when you are filling out your application.
Furthermore, if your business is seasonal, such as if it booms in a single month of the year, the lender will be hesitant to grant you an unsecured business loan. If they do lend, they will charge you a hefty business loan interest rate.
Apart from the above, a lender will not approve a loan that does business with an enemy nation.
Another important element that influences loan approval is your income. The lender considers income to include not only your own earnings but also the net profits generated by your company. A stable income assures the lender that their funds are safe and that you will repay the loan. The majority of financial organisations do not specify a minimum income requirement for this type of loan. This is because they arrive at this conclusion after considering a number of other factors, such as your company’s financials.
Make sure your bank account statement reflects proper transactions before submitting your application. It also aids the lender in estimating your monthly minimum income.
Among all of the above factors, the financial aspect of a firm is of significant relevance. It provides the financial institution with a thorough understanding of your company’s profile. The financial institution assesses your company’s balance sheet, cash flow statement, and income statement. If your income statement demonstrates that your company has had consistent revenue and earned a reasonable profit over the years, approval is on the cards.
Similarly, a balance sheet aids lenders in determining the debt-to-equity ratio and current ratio of your business. The lender may reject your application if your company’s total liabilities exceed its assets.
The cash flow statement aids lenders in calculating the amount of cash on hand and in the bank. If it’s low, it will indicate to a lender that your company doesn’t have enough cash to cover its fundamental needs.
The approval chances are higher if the company’s financials are audited by a Chartered Accountant (CA).
Financial institutions are interested in learning about your business plan if you own a small firm. Make sure you have a good business plan in place before applying for this loan. Ensure that all pertinent information is included in your presentation, as this will boost your loan eligibility. Mention the companies or firms with which you are working. Make a list of all of your major investors. Also, highlight the expected turnover and sales figures for the upcoming few years.
A business plan helps lenders understand how you plan to use the funds. Getting approval will be much easier if it is in the company’s best interests.
You are probably thinking about how collateral might help with an unsecured loan. However, it has a significant impact on any type of loan, not just business loans. It increases your chances of approval if you fall short of the lender’s minimum qualifying requirements.
Putting up collateral means you are giving authority to the lender to sell them in the event you default. In the eyes of the lender, collateral ensures that the lender’s money is safe. Some of the most common assets that you can put as collateral are plant and machinery, inventories, and a few more.
Business Credit History:
When approving your loan or establishing an unsecured business loan interest rate, the lender looks into your business credit history. They calculate your company’s debt-to-revenue ratio, to determine if you qualify for this loan or not.
Now that you are aware of the factors influencing your unsecured business loan approval, working on the same will make things a lot easier for you.