Small to medium-sized businesses often look out for financing options that can help them fulfil their immediate to long-term funding needs without much hassle. The availability of a business loan with various borrower-friendly features makes it easier for businesses to attain financial stability, allowing them to take the necessary decisions towards growth and expansion. Individuals owning a business can easily apply for business loan with one of the lending institutions offering favourable terms of service.
These loans are usually available as unsecured advances and come in high financing value, making them all the more reasonable to avail for an enterprise not willing to risk its asset. The necessary financing value can be availed only against minimum eligibility criteria that the lending institution requires one to fulfil. However, availing the funds can be a challenge if you are not well-prepared. We have brought you the following checklist to help you prepare before you apply for a business loan to improve your chances of loan approval and to easily manage the advance. Take a look.
Clarity Regarding the Need for Financing
A business may need financing for several reasons, from fulfilling immediate funding needs to fulfilling long-term capital investment. Simultaneously, while it makes long-term goals attainable, gaining clarity regarding the expenditure you need to meet with the advance allows you to project a well-planned business prospect, making your candidature a reasonable lending option for financial institutions.
Thus, before you apply for a business loan, make sure that you have gained sufficient clarity regarding the expenditures that would be met with the help of such financing. It allows you to go through a smooth application process, also helping gain lender confidence regarding your financial planning and discipline.
Available Borrowing Options
Before borrowing, it is essential that you explore all the available financing options in the market. Doing so shall allow you to find the lender offering reasonable financing value at favourable terms as well as affordable rates. Go for an extensive, in-depth market research that should help you gain a better perspective on the available features from different financial institutions.
Some of the best lenders offer high financing value of up to Rs.25 Lakh as unsecured business loans to enterprises against competitive rates of interest. These loans come with flexible repayment options and require you to meet only minimum eligibility and document criteria to apply.
With a high eligibility than the minimum requirement and an exceedingly reasonable repayment capacity, you also stand to negotiate with your financial institutions to secure the most favourable terms before your apply for a business loan.
Flexibility of Repayment Tenure
Reputed financial institutions also bring extended tenures to allow easy repayment of the advance, and enable borrowers to choose suitable repayment plan as per their financial capacity. Such flexibility in repayment tenure allows you to align our repayment plans with the monthly business revenue that you garner. It thus also makes it convenient to manage your loan efficiently, helping you maintain a high creditworthiness as well with full and timely repayment of the advance.
With some of the most prominent NBFCs in the market, you can expect to opt from a tenure flexibility of up to 5 years for unsecured business loans. When availing secured financing, such flexibility can go up to as long as 15 to 20 years, allowing you ample scope to manage your finances without much hassle.
Business Growth and Expansion Plans
Keeping the growth and expansion plans of your business upright has similar benefits as keeping your expenditure objectives clear for loan utilisation. Long-term growth and expansion plans of a business allows it to project long in the future the expansion it is willing to reach with the available and prospective resources it aims to gather in the future.
An ideal business plan comprises both past achievements and future objectives, which also allows it to reflect on the metrics of achievement later on. Submitting such a plan to your lending institution along with the loan application allows them to review business stability and reliability. A futuristic approach to the financing thus nudges your lender to conveniently sanction the financing needed for your business.
Along with business growth prospects, you must also back your application with the necessary documents to ensure individual identity, business existence and perpetuity until your application. Lenders often require you to provide the following essential documents to establish your identity and eligibility for the advance.
- KYC documents: These are documents that establish the identity and address of the borrowing applicant. They include any document carrying photo and/or address of the individual applying for the loan which is approved by the RBI and issued by an authorised body. Some of the common KYC documents you can submit include PAN card, Aadhaar card, Voter ID card, Passport, Driving License, Ration cars, utility bills and the likes.
- Proof of business existence: Documents like incorporation certificate, partnership agreement, GST certificate, etc. serve as a proof of the business’s existence.
- Income documents: You would also need to provide necessary income documents that should help establish your repayment capacity, which primarily include your bank account statements and Income Tax Return filed for 2 to 3 previous years as required.
- Financial statements: Financial institutions also require businesses to submit their financial statements like balance sheet, profit and loss statements, etc. for them to easily assess the business’s financial stability.
Before you apply for a business loan, it is essential to check whether the financing amount is turning out affordable or not over the tenure selected. You can assess the total repayment liability along with the EMIs payable and the total interest payable to estimate your affordability for the advance. The right financing value should keep your monthly liabilities payable as EMIs affordable while also ensuring a reasonable interest accumulation over the years.
Lenders provide free financial tools like business loan EMI calculators and eligibility calculators to help you assess your loan amount and tenure feasibility so that you apply for the right financing value. The tools are easy to use and require you to input only a handful of loan and personal details to obtain the results.
Interest Rate and Charges Applicable
When it comes to loan affordability, interest rate is among the first parameters to check. You should thus make sure to compare different lenders available in the market to ensure that the loan option you have selected offers a competitive rate. Alongside, it is equally essential that you know about other applicable charges, which can also contribute significantly to your total loan affordability and make repayment convenient.
Eligibility for a Business Loan
When applying for the advance, you would also need to fulfil a handful of eligibility requirements that establish your qualification for the financing value. Lenders lay down these criteria to ensure that your business can afford the financing and repay it in time, also eliminating a degree of risk from the borrowing profile.
As these business loans are mostly unsecured advances, a minimum individual and business credit score is required, which should be not less than 750. The applicant must also have a minimum annual as well as monthly income to ensure affordability. Other criteria for loan eligibility include age of the borrower, business stability, business existence for a set number of years, and the likes.
Once you have met the eligibility requirements laid down by your financial institution, you can proceed to apply for a business loan. While both offline and online application processes are available, it is ideal to go for the latter as it streamlines the application process, eliminating lengthy paperwork and other requirements on the way, allowing quick approval and disbursal of the advance.