Unsecured Business LoanAnkit Rastogi
Definition:- Loan provides to MSMEs ( Micro, Small & Medium Enterprises) without collateral for their short term requirement on monthly repayments are called unsecured business loans. It’s like bridge funding to the business. MSME can avail of this product fund without asking any collateral. This product is available in two options.
- Loan on monthly EMIs – Loan repayment option on equal monthly installments (Principal + Interest)
- DOD (Monthly Drop) – Overdraft limit which reduces by the equal monthly principal and with interest on the amount used. ( Principal + Interest on the amount used)
Why this product?
It helps to match the short term requirement of MSME where they have no other option to take the secured loan for immediate requirements. This product is made to support MSMEs in many ways like-
- Short of working capital
- Contingency capital investment
- For new business opportunities
- Business Expansion
- To purchase of raw material
- For emergency expenses
- To start a new product line
Who are the Lenders of this loan?
Unsecured Business Loan is a very popular product in our financial system and there are many Banks and NBFCs are available to serve all types of customers in this segment.
Bank – HDFC Bank, Kotak Mahindra Bank, ICICI Bank, RBL Bank, Axis Bank, IDFC First Bank, Deutsche Bank, Standard Chartered Bank, Indusind Bank, etc.
NBFCs- Aditya Birla Capital, Magma Fincorp, Hero Fincorp, Fullerton India, Tata Capital Edelweiss, Capital float, Rattan India, Bajaj Finance, Capital Tech, FedBank Finance, Clix Capital, Sriram Union Finance, Lending Kart, Neogrowth, Uglow, SME Corner, Pinnacle Capital, etc.
Feature of Unsecured Business Loan
There are few great features in this product which makes it so much popular for MSMEs
- Loan without property
- Quick disbursement
- Easy to apply with minimum documentation
- Short term needs
- Easy to avail as low eligibility criteria
- Short term repayment
- Monthly EMI
- Repayment tenure 12 to 36 months
- ROI 15.50% to 19%
- Also Available in DOD form
Who can avail of this loan?
This product is specially made for MSMEs. Any businessman or professional can avail this product those who have legal business in nature and can prove with relevant documents.
- Annual turnover > 50 Lacs
- Business vintage >3 Year
- Ownership Proof – Anyone from residence or office
- Profitable business
- Clear credit history
- Business doesn’t fall in the negative list
Who can’t avail of this loan?
That business falls in the negative list for lending they can’t avail this loan like:-
- Property dealer
- Old vehicle sales purchase dealer
- Liquor shop
- Financial services agencies
How many funds can get from this loan?
There are three main parameters to fund on this product.
- Legal Business
- Repayment Capacity
Scheme to calculate the repayment capacity of the borrower.
- Cash Profit ( DSCR)
- Banking ABB
- RTR ( Repayment track record)
- GST program
- EDC Machine Loan
What is the Process of Business Loan
- Verification – 2 visit by different agencies
- Calculation sheet to check eligibility
- PD ( Physical Discussion)
- Post PD queries
- Decision- Sanction/Reject
- Agreement formalities
Borrower Name – Mr. Raghav Proprietor of ABC & Sons
Lender – XYZ Bank
The scheme – Cash Profit
Net Profit – 25,00,000
Depreciation – 14,00,000
Interest on loan –1,00,000
Total Income – 30,00,000/12 = 2,50,000
Existing EMI – 100000
Proposed EMI 90,000
Total EMI – 1,90,000
DSCR = Total monthly income/ Total monthly EMI
2,50,000 / 1,90,000 = 1.32 times
Comfortable DSCR is 1 %
Mr. Raghav Require a Business loan of Rs. 25Lacs for his business expansion and he wishes to apply in XYZ Bank. He has to follow the below points.
- He contacts a representative or agency holder of XYZ Bank
- He asks bout ROI and other charges
- He gives his complete details about his financials
- Bank guy checks his financial eligibility for Rs. 25 Lacs and found ok.
- He prepares a complete list of documents as required by XYZ Bank
Mr. Raghav gives his complete documents to the Bank for a business loan and waits for their response.
Mr. Sunil is a Bank representative call to Mr. Raghav for some details about his business profile. He also asks some points related to his end-use of funds. Mr. Sunil communicates with him about Bank Procedure, the number of days to complete the process, and the ROI scheme. Mr. Raghav understands the details and confirms him about the costing scheme.
Day First:– Mr. Sunil initiates for login in the system, CIBIL runs and initiate for verification of Mr. Raghav’s residence and office run on the very.
Day Second:– He sends the file to CPA for the calculation sheet. CPA guy put all financial figures to their systems like a complete balance sheet and bank statement.
Day Third:- they plan for PD with Mr. Raghav after checking CIBIL reports and Calculation sheet. The credit manager enquires all their queries related to CIBIL reports, existing loan details, and financials. They also ask about the loan amount and end-use. After PD they visit the whole factory and click some photographs for his PD reports.
Day Four:– the credit manager prepares a list of queries and details as per discussion on the PD, it is called post PD documents. Mr. Sunil receives this mail from the credit manager and sends it to Mr. Raghav. Mr. Raghav receives mail and replies it to Mr. Sunil with complete details as required.
Day Fifth: Mr. Sunil send this mail to the credit manager. Credit Manager checks all details and prepares his sheet. Now he analyses the complete case with complete facts and figures. He found everything ok in this case then he recommends the case to his approval authority.
Day Sixth:– Case is approved by XYZ Bank for Rs. 25 Lacs. Mr. Sunil congratulates Mr. Raghav for unsecured business loan sanctioned for Rs. 25 Lacs. Mr. Sunil complete all agreement formalities with Mr. Raghav.
Day Seven:– Mr. Raghav receive a disbursement amount in his company account by RTGS from XYZ Bank.
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