It is important to understand the choices one has when it comes to a loan. Applying for a business loan becomes essential when one wants to set up or grow one’s business and when one does not have enough means of self financing. A good way to opt for a loan in this regard is to try for a collateral free business loan. There are many who would argue that a secured loan is the best way to go- because as an asset is provided as a collateral- there are chances one can get approved for the loan at a lower interest. However, creditors can undervalue the asset to a considerable degree, which means you will be offered a much lesser amount than what your asset actually is actually worth. Add to that the constant worry that you have an asset that would needs rescuing. Hence, it is a better idea to opt for a loan without security instead and in case you have a good repayment plan in place, paying off the loan over time would not be a problem at all.
The thing is, how to borrow a collateral free loan in the first place. Will creditors be actually willing to grant such loans?
The reality is that today there are many leading banks and NBFCs which are offering collateral free loans and at very good interest rates as well. One good way to secure this kind of loan is to have a good credit score in place. A score above 700 is considered a strong one and can be enough to convince a lender that you are a good investment risk. At the same time, it would also pay off to have healthy repayment practices on all your bills and payments as just in case the creditor asks for a detailed credit history, then he would be impressed to see your financial record.
To have a good credit report, one should make good of all the payments as soon as it is possible to do so. It would also be a good idea to reduce the credit loans because credit cards are nothing but short term loans. Also, if one already has more than one existing loan, then the creditor would not want to give you a third or fourth loan without security. Hence, it would be a good idea to pay off as much as the previous loans as possible and then apply for a business loan. Other kinds of loans might include home loans and education loans and paying them off beforehand will stand you in good stead, not just because you will be contending with fewer EMIs but also because you would be setting an example for your creditor to see that you are serious about repayment and that you have already paid off a loan before quite successfully.
It also helps if one has a prior working relationship with the creditor from before but this is not a prerequisite and you can approach any new financial institution to gain a business loan without security. The loan just has to be paid on time because failing to do so can induce the lender to take legal action against you and if they win the case, then you might not be eligible to apply for a loan ever. Hence, it is important to make oneself eligible by going through the eligibility criteria of the lender and keep up with the payments, credit ratings and lastly, have all the documents in place which would be needed for verification during the final approval of the loan.