Steps You Should Follow When Applying for a Small Business Loan
The Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Indian economy contributing around 40% of the GDP of the country in 2018. The sector is employing more than 117 million individuals currently. The introduction of various schemes from the government along with the introduction of GST has provided an ideal environment for the growth of the small scale industries.
Facilitating the growth of these businesses are the favourable schemes and financing offered by both the government and NBFCs. Availing a business loan has become all the more convenient thanks to fintech companies.
However, to successfully gain approval for the loan, follow the steps given below:
- Review your eligibility
Before approaching a lender, applicants have to check whether they are eligible to apply for a business loan.
Eligibility is determined based on certain factors like age, credibility, annual turnover rate of your firm, etc. Applicants should be at least 21 years old with a business that has a vintage of at least 3 years.
Several financial institutions or NBFCs categorise customers under entities, employment status, and business profile. A borrower needs to check the category they belong to as it will decide the interest rate and loan tenor.
- Gather relevant documents
Availing a business loan requires an individual to gather relevant documents. Document requirements are duly dependent on the type of credit an individual chooses.
Here’s a list detailing the documents required for business loans:
- KYC documents – Driving License, Voter ID, Aadhaar, Passport, etc.
- Proof of business – GST registration certificate, RoC certificate, partnership deed, etc.
- Bank account statement of the previous month.
- Audited financial statement of the company for the last two to three years
These documents required might vary as per lenders, so check from your chosen lending institution.
- Scrutinise your credit report
Generally, a business loan is not guaranteed unless you possess a good credit report. It’s the only way for lenders to understand your capabilities in repaying the amount. Borrowers can get the opportunity to seek quick approvals if they ensure their business CIBIL score is above 700.
Entrepreneurs willing to apply for a business loan should avail their credit report and address any errors in it before applying.
- Consider the lending options
Amidst hubs of lenders available in the market, you need to choose the ideal one that meets your requirements. Some NBFCs enable borrowers to receive credits with lesser hassles and simplified paperwork. Baja Finserv is one such financial institution that is offering loan up to Rs. 30 lack within a single day.
- Prepare a business plan
Lenders will try to enquire on how you are going to utilise the credit as well as check loan repayment capabilities. A detailed structured business plan reflects an enterprise’s working capital. Lenders gain confidence when you provide them with an outline of cash flow and operations.
A business plan must include sales or marketing strategy, company profile, SWOT analysis, operational plan, and details on services. Entrepreneurs should draft a great business plan before procuring a loan.
- Decide on the amount
Deciding on the loan amount depends on what you want to use it for. For example, you may seek financing for working capital, expansion, upgrading machinery/equipment, etc. Have a clear estimate of your requirements and borrow accordingly.
Do make sure to use an eligibility calculator before you apply for a business loan. This online tool tells you the amount you are eligible for based on income, existing debts, and other factors.
The best way to avail a small business loan successfully is by diligently fulfilling all the terms and conditions. Make sure to have a minimum credit score of 750 to become eligible for the loan.