Vishal is a young entrepreneur who has been in the e-waste recycling business for over 4 years. He proposes to scale his processing unit over a 12-acre land in Himachal Pradesh. His company extracts pure metals like gold, titanium etc. from waste/disposed electronic goods.
He can easily avail collateral-free business loan if he does some ground preparation.
Simple Measures That Can Easily Get You Collateral-Free Business Loans
1. The Amount Of Loan
Have a clear picture on your income, expansion plan, proposed budget and the money required to execute the plan. Once you subtract income from your expenses, you need to figure out the time, when you can repay the principal and interest of the loan.
A clear idea of the projected income/profits and expenses will help you to decide the required loan coverage and the tenor of the payment.
2. Assess The Financing Options
You need to compare the features of business loans across different non-banking financial institutions (NBFCs). The secured business loans need collateral. You should know the estimated value of your collateral to pledge for a loan.
If you do not have collateral or if its valuation falls short, then you can go for unsecured business loans. Bajaj Finserv provides loan for business of up to Rs. 30 lakh for a tenor of 12-96 months without collateral.
3. Keep The Documents Ready
Even if you opt for collateral-free loans, lenders would ask for certain documents. This will help them verify and assess the financial soundness of your business. The basic documents that you should have include:
- Certificate of business
- KYC
- Profit and Loss sheet
- Financial Statements – balance sheet, cash flow statements, business plan
- Latest bank account statements
Different NBFCs have different business vintage norms, and they peruse your business proof. A business plan is equally important for both the start-ups and the expanding firms. The minimum business vintage for Bajaj Finserv is 3 years.
4. Business Plan
Lenders study your business plan to gauge the strength of your business model. They try to assess if the projected sales are appropriate and when they will yield profits.
Lenders can judge whether the government norms are favourable for the business or if they will prove to be a spanner in the wheel. Also, NBFCs may prefer to avoid businesses that have long gestation periods or any other issues.
In the above case, Vishal must prepare a proposal to highlight how will he collect the e-waste and the costs that will be associated with the same. Then he must elucidate how long will it take to process the metals, and the selling points.
5.Financial Soundness Of Your Company
Lenders judge the liquidity of your company to see if your business model can repay the loan that you borrow. The lenders prefer a lower debt to equity ratio. You should have less debt to service, else the lenders can be sceptical of your ability to repay their loan.
They also assess whether your current assets, net operating income, and cash flow is adequate to pay back the loans for business. The Debt Service Coverage Ratio and the current ratio of your company should be at least 1. You should have high credit score and no negative remarks about your ability to repay debt.
With these simple steps, you and entrepreneurs like Vishal can easily know how to get a collateral-free business loan. You can apply for collateral-free loans online. They have listed the documents required and the EMI calculator to further simplify your loan application process.
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