Are you looking to apply for collateral free loans? You should definitely keep a few things in mind in order to avoid making mistakes which can cost you later on. The need for a loan without security arises from the basic requirements of businesses which need money to take care of day-to-day expenditures or expansion without having the immediate means to pay for the same. Also, getting a business loan without collateral helps those organizations who do not wish to mortgage assets like property in order to get the loan sanctioned. This also helps startups and organizations which have just started out since they do not have major assets in their names in most cases.
Loans without collateral are some of the best options for financing business requirements. You can always apply for unsecured financing without having to pledge assets or furnish any guarantor for signing the loan agreement with you. However, here are some things that you have to keep in mind-
- Credit Score- If you do not know your credit score, you will definitely be at a loss while applying for a collateral free loan. The credit score plays a vital role in helping you get your collateral free loan approved. In case the credit score is on the lower side, the application may be rejected while a good credit score and repayment track record will help you get the loan sanctioned more easily and with a lower rate of interest to boot.
- Loan Purpose- You should apply with a clearly detailed business plan/purpose of taking the loan. If this is unclear, the financial institution will think twice before sanctioning the collateral-free loan. You should have a clear strategy talking about how you will be using these funds. Also highlight the expected revenues and income that can be tapped and generated by using this loan.
- Financial Stability- Stability is the keyword that you need to have while applying for a collateral-free loan. For example, if your business is still on shaky ground but you launch into diversification mode or you switch your area of business just before applying for the loan, this may not win approval from the financial institution. The business will have to be at least 3 years old in case of the eligibility criteria of most lenders.
- Documents & Eligibility- You should always have thorough knowledge of the eligibility criteria and documentation. You will only get the collateral-free loan in case you match all the eligibility criteria of business finance and other terms and conditions.
- Loan Terms & Conditions- These have to be examined carefully. Not going through these aspects in detail may cost you later. You should read every provision and clause prior to signing the loan agreement. Check information about the total tenor, EMI schedule, interest and other fees and costs of the loan.
Collateral free loans help you avoid the hassles involved in pledging your valuable and hard earned assets for raising business funds. You should keep the above factors in mind while applying.