The journey of a small business unit is full of challenges both on the operational as well as the financial front. However, one need not lose hope on the financial front as fintech lenders with their technological platforms have customized business funding for SMEs.
Each NBFC has certain predetermined criteria based upon the satisfaction of which the business loan is extended to the loan applicant. The complete fulfillment of these conditions results would result in loan sanction under favorable terms like a lower interest rate and the desired loan amount. However, while the chances of obtaining an unsecured business loan from an NBFC is high, even for those who have been rejected by the banking system, there are adequate checks in place in NBFCs as well.
The following are the ways in which one can improve one’s chances of getting unsecured business funding:
1. Credit Score
A high credit score along with strong financials is a sure shot way to easily obtain a business loan. This would translate into a credit score of over 750. A minimum score of 700 is generally required to obtain a business loan. However, it is not possible for all to have ideal credentials. In such a case, an average credit score can obtain a business loan if the business model is based on sound financial parameters.
The lender is primarily concerned with the repayment capability of the borrower. Hence besides the credit score, the fintech lender would also assess the business performance.
2. Operating period
Most fintech lenders mandate a minimum business operating period of 3 years. However, in case audited financials of 2 years are produced, the loan may be granted to eligible borrowers with a lower vintage. The underlying rationale is that a new business is a relatively risky profile as the sustainability of the business is yet to be ascertained. Further, the revenue stream may be limited and may not provide sufficient assurance as to the repayment capability of the business unit. The lender would look into the stability of turnover and profitability aspects. A business with a long tenure of operations with a steady income is guaranteed to get a business loan.
3. Profit making entity
Every business is ultimately run with the motive of earning profits. A business with healthy profits is sure to obtain a business loan. Ultimately profits are used to pay the EMIs on business loans. Many NBFCs also mandate a minimum turnover limit of Rs 40 lakhs.
4. The Volatility of the Business
Business cycles are inherent in every business. This is because the forces of supply and demand vary and according to the pricing has to be recalibrated. Also, external economic events influence business fluctuations. Hence there is some amount of business volatility in every business space. A relatively stable business is sure to get loan sanction. However, some industries are prone to frequent volatility. The fintech lenders would study the economic conditions and the industry-specific factors in which the business operates, before extending the business loan.
5. Assets base
The asset base depicts the strength of the balance sheet and indirectly the strength of the business. This is because assets need to be funded and a cash-rich business would be in a position to acquire valuable assets. The cash, in turn, is earned from business operations. So, in conclusion, a business with healthy financial performance would be able to build an asset base. While unsecured business loans do not require collateral, it is advantageous to have a considerable asset pool. A significant asset base is a strong indicator of the viability of the business model. The lender would be willing to readily extend the business loans
Based on the business performance and the creditworthiness of the promoters, lenders provide financial assistance by way of business funding. Thus a good track record and healthy financials go a long way in getting the business loan.
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