1. Types of unsecured business credit

Small business owners can access unsecured credit as a business overdraft or a business installment loan. These types of debt financing do not require any collateral, are processed quickly and are usually more expensive than secured loans. Access to additional bank services and the flexibility for the utilization of these funds are additional advantages.

• Business Overdrafts: Business overdrafts or cash credit facilities offer businesses cushion for cash flow and working capital shortfalls in the short run. Interest is payable on amount utilized. Amounts and interest levied vary according to past banking history and credit balances and are repayable commonly over 12 months.
• Business installment loans: Business installment loans finance expansion plans to increase potential without committing any assets held. Repayment is through EMIs or on flexible remittance over a fixed tenure, usually 60 months. These are applicable for financing over Rs 5 lacs.
• Unsecured lines of credit ranging from Rs 50,000 to Rs 35 lacs: Most small businesses over two years old qualify for an unsecured line of credit, with the exception of cash-based industries. The majority of unsecured credit lines are provided by larger lenders. Smaller regional banks shy away from providing these products until they have established a strong business banking relationship with the borrower. Policies for unsecured lines of credit vary slightly from bank to bank. Possible additional costs may include processing fees up to 1 to 2.5 percent of the amount disbursed, prepayment penalties up to 5 percent of the outstanding principal and penalties on non-payment or delayed EMI payment.

General Required Documentation: Certificate of registration, latest tax returns filing receipt, identity proof, residence proof, proof of property ownership, bank statements for previous 3 to 6 months, and the credit application of lending institution (filled and signed by borrower). Post dated checks at the time of disbursement.

Tips to strengthen case:

• Present a well thought out business plan. Take professional help in creating the presentation if needed.
• Collateral can be waived if the business has a sound track record. Presenting personal financial statements, details of business accounts receivables, assets, confirmed orders and client lists may help to validate business solvency. A solid credit rating helps. If there is a problem, come out and explain the conditions and status.

2. Equipment financing term loans up to Rs 2,000

Any business with equipment can qualify for this financial product. Most large lending institutions in India and some specialized equipment financiers provide equipment financing loans.

General Required Documentation: Estimation of equipment value from supplier, estimation of capital improvement and construction costs

Tips to strengthen case:

• Provide a detailed breakdown of the equipment (include make and supplier).
• Provide the estimation of capital improvement costs from an approved general contractor.
• Provide information for equipment installation (floor plans, copies of lease agreements, etc.).