A small business needs the right kind of funding at the right time to thrive. So, follow these 5 tips to get a loan easily.
In India, small businesses often require the right amount of funding at the right time to ensure smooth operations and maintain a positive cash flow. However, they often need monetary infusion through loans. Borrowing from private lenders often comes at a price that might not be the right move for every business. In such circumstances, seeking a business loan is appropriate.
However, how do you ensure that your application does not get rejected? The following tips can help:
Keep your documents handy
Often, misplaced documents or unavailability of the essential ones negatively impact your chances of getting a business loan approved. Hence, conduct a thorough inspection of your accounts and ensure that personal expenses are not mixed up with business expenses as it portrays an unprofessional attitude on your part.
*The following documents are commonly required:
1. KYC documents
2. Ownership proof
3. Registration certification of your organization
4. Business continuity evidence
5. Financial documents such as income tax returns, bank account statement, audited financial statements, projected cash flow
*The above list is not exhaustive in nature and it is advisable to check with your lender about any other documents that might be required.
Check your eligibility criteria with the desired lender beforehand and ensure that you keep the above documents ready.
Create a sound and detailed business plan
Since your business plan determines the profitability of your business, put together a detailed and rational one that shows loan officers the growth prospects of your business and why you need the loan in the first place. A well-detailed plan will decide to a large extent whether your loan request gets approved or not.
A quick checklist while making a business plan
1. Highlight how your product will stand out from the competitor and what opportunity your are seeking currently through the loan
2. Provide the analysis of your execution plan of the said opportunity
3. Show projections of your revenue and expenses
4. Put together a financial plan for repayment of loan, considering other liabilities
Improve your credit score
This is one of the most important criteria that you need to satisfy if you wish to get approved for the desired loan. A low credit score can make the lender perceive you as a risky applicant or borrower. In that case, the lender might either shy away from granting a loan or charge a higher rate of interest. On the other hand, a good credit score will enhance your capacity to negotiate with the financial institution to ensure that the terms are in your favor.
Quick tips to boost credit score of your business:
1. Maintain healthy payment habits
2. Clear long outstanding bills
3. Check your credit card dues
4. Regularly check your credit score to be aware of your financial standing
Spend time researching the type of loan
Needless to say, every business is different and has varying funding needs. So, you should devote time to figuring out which type of loan will be appropriate for your revenue cycle. Keep your ability to repay the loan in mind as well. Since there are a variety of business loans available for different kinds of end use, here is what you should do to choose the right one:
1. Compare the repayment terms
2. Check the application fees
3. Consider the type of business financing you require
4. Zero in on a rate of interest and tenure as per your repayment ability
Watch out for government-aided schemes
Small businesses often lack the collateral needed for availing a secured loan. And if they opt for an unsecured loan, the interest is usually quite high. Moreover, a business loan is typically laden with processing fees and other hidden charges. So, these are the reasons why a small or medium business can benefit immensely from government-aided schemes, which aim at weeding out the hassles and lengthy paperwork typically involved in loan applications. Such schemes also provide loans at affordable rates. All you have to do is check your eligibility criteria for some government approved loans, like the following:
Pradhan Mantri Mudra Yojana
Credit Guarantee Scheme (CGTMSE)
MSME Business Loans for Start-Ups in 59 minutes
Apart from the tips mentioned above, small businesses can also seek solutions from a neo banking platform like InstantPay. Our business banking feature allows you to avail different facilities such as setting up an OD or CC account and applying for a business loan within minutes. Additionally, using our business banking feature will make it easy for you to get a bird’s eye view as well as a detailed analysis of your finances. This will be useful when you make future projections for your business to convince lenders and get your loan application approved quickly.