Despite the numerous rags-to-riches stories you hear about successful entrepreneurs, almost everyone needs financial aid when building their business. Ambition and passion are essential. However, these traits are insufficient to get the cash flow you need. That means some external financing is inevitable to scale your business operations. That is when small Business Loans propel companies to new heights. That said, the process of obtaining a Business Loan seems daunting. Taking the essential steps and preparing efficiently are necessary to improve the chances of loan approval. Here’s a look at the six steps required to secure a small Business Loan.
Six Steps to a Successful Business Loan Application
Here are the six steps to follow for a successful Business Loan application:
- Check Your Credit Score
Your credit score is one of the most crucial factors affecting your online Business Loan application. Lending institutions use this 3-digit number to assess your credibility and determine your loan amount, interest rate, and other terms and conditions. You can check your credit score for free online and ensure it meets the lender’s minimum requirement. If it is low, work on improving it before applying for any Business Loan, such as supply chain finance. Achieve that purpose by using credit responsibly, keeping your debt-to-income (DTI) ratio low, and paying all EMIs and credit bills on time.
- Evaluate Your Finances
Lending companies want to clearly see your financial situation before approving your loan application. That means you must prepare your financial statements, like income statements and balance sheets, efficiently to present your cash flow, expenses, and revenue firmly. If your financial situation is unclear or your financial records are not up-to-date, get organised now. Proper financial evaluation will streamline the loan process and, at the same time, help you run business operations more effectively.
- Consider Different Loan Types
You may consider different types of business finance options when looking for small Business Loans. Ask yourself these questions to make an informed decision:
- How will you use the funds?
Some SME loan providers impose limitations and restrictions on how you can spend the loan amount. For instance, working capital loans, commercial real estate loans, equipment loans, supply chain finance, etc., are designed for particular entrepreneurs and purposes only. Consider the loan type you need according to your eligibility and requirements.
- How often do you need finance?
Evaluate your finance needs and determine whether you need a one-time lump sum support or an ongoing line of credit open to you. A term loan provides upfront one-time cash to tackle significant expenses like renovations, expansions, or purchases. Ongoing funding includes lines of credit offering flexible financing as and when required. It provides a credit limit up to which you can withdraw what you need and manage everyday expenses.
- How much do you need to borrow?
The amount of funds you require narrows down your SME finance options. If you need funds for regular operations, a smaller amount will be ideal. However, if you need funding for renovation, expansion, or acquisition purposes, you might need a larger amount with a longer repayment term.
- Determine Your Loan Eligibility
Each lending institution has specific eligibility criteria that you fulfil to qualify for a Business Loan. Generally, lenders use the following criteria when evaluating your loan eligibility:
- Age and Citizenship: You must be an Indian citizen between 25 and 65 years to qualify for a loan application.
- Occupation: Business Loans are also available for self-employed professionals like architects, doctors, company secretaries, or chartered accountants; self-employed non-professionals like retailers, sole proprietors, traders, service providers, or manufacturers; and entities like LLPs, partnership firms, private limited companies, and trusts.
- Work Experience: You must be running the business successfully for at least five years.
- Loan Amount and Tenure: You can borrow a Business Loan amount of up to Rs 40 Lakh at interest rates starting at 14% and choose a repayment tenure of up to 60 months.
Not all loan plans are equal. You must find a lender offering loans suitable to your business needs. It ensures obtaining a loan plan that can fulfil your funding requirement without causing financial stress.
- Gather the Required Documentation
Once you have found a suitable lender, gather the required documentation as the lender demands. These include the following:
- Mandatory Documents: Application form and PAN card
- Identity Proof: Voter ID, driving license, Aadhaar card, passport, government-issued photo ID
- Address Proof: Voter ID, driving license, Aadhaar card, property tax receipt, registry copy, utility bill, lease or rent agreement
- Business Continuity Proof: Sales, excise, VAT, or service tax registration, trade license, certificate of practice, copy of partnership deed, RBI or SEBI-issued registration certificate
- Signature Proof: PAN card, passport, banker’s verification
- Income Proof: Latest ITR, latest audited financials, financial year’s GST returns, last six months’ bank statement
- Other Documents: Shareholding patterns, list of Directors, etc.
- Apply Online
Now that you are ready to apply for a Business Loan, you must make a strong case for your borrowing purpose. For that, you must create a business plan, evaluate your finances, and make a loan request convincingly. Applying appropriately is key to taking your company to the next level and expanding the enterprise where you are looking for. Follow these steps to apply for a Business Loan online with higher chances of approval:
- Check the eligibility criteria and ensure you fulfil them.
- Use an eligibility calculator to check your eligibility and an EMI calculator to choose a suitable loan term.
- Visit the lender’s website or download their loan app.
- Fill out an online application form with your personal and business details.
- Scan and upload the necessary documents.
- Wait for approval and accept the loan offer.
- Once you complete the process, receive the approved amount into your bank account quickly.
Taking time to prepare and following these six steps will place you in a better position to secure small Business Loans successfully. The right financing provides the finance required to grow your business and achieve goals.