Traditionally, it was difficult for people to start a new business due to the lack of capital access. Today, with so many lenders and NBFCs issuing easy business loans, budding entrepreneurs can secure funds, start their ventures, and fulfill their dreams.
If you are also looking forward to starting a business and require funds, taking a business loan is the best option. It provides capital to start a new business, expand the existing business, add a new product or service line, etc. You can also secure funds for hiring additional workforce or buying new machinery.
Business Loan: The Importance
A business loan allows quick and easy access to funds for starting or maintaining a business. The loan provides you backing, and you can afford to contemplate business growth opportunities and expand your products and service operations. The loan allows you to explore new markets, buy new assets, and increase business scalability. Business loans can fill the cash flow gaps and help you easily manage day-to-day expenses.
You need to jot down your financial needs, conduct research, compare different loans, and then make an informed decision about taking a business loan. Also consider business loan pre approval.
Business Loan: Eligibility Criteria
When considering a business loan, you should check business loan eligibility. Different lenders may have different sets of eligibilities, but the most common ones include the following.
1. Credit History
The lenders check your credit report to understand your credit repayment, credit score, etc. This is done to check the risk percentage if the lender gives funds to the applicant. So, before applying for a loan, check important components of your credit report, like usage, outstanding debts, and score.
2. Financial Statements
The lenders like to see the business financial statements like profit and loss, income statements, balance sheets, cash and debt flow, etc. Checking these allows the lenders to assess the business’s health. They get an idea of how profitable the business is and whether the applicant will be able to repay the funds to them. Other than this, some lenders also ask the applicants’ to furnish the documents of the total number of workforce, revenue trends, debt obligations, etc.
3. Business Age
If the business has been doing well for more than a year, you will get the loan easily. However, new and unstable businesses might have to fight for it.
4. Industry
The loan approval also depends on the type of your business industry. If the industry is booming and has growth potential, the lenders might approve your loan. When the competition is tough and the market conditions are not favorable, the lenders might not agree to provide loans so easily.
5. Loan Purpose
Lenders will assess the purpose for which the loan is being taken. If the applicant is taking a business loan to introduce new growth strategies, expand business due to growing market opportunities, etc., then it enhances the borrower’s eligibility.
6. Compliance
The lenders may conduct due diligence to ensure that the business is complying with legal and regulatory norms. They check whether the business has a mandatory license, permit, tax filings, etc., before approving the loan.
Business Loan: How to Apply?
Know that you know How to Qualify for a Business Loan, also be informed about applying for a business loan and ensuring a successful application approval:
Evaluate Needs
So, what do you need a business loan for? Assess your financing requirements and determine whether you are starting a new venture, expanding existing operations, purchasing new machines, increasing working capital, etc.
Determine Loan Amount
Next, you should define the amount of funding according to your needs. For example, if you want to include twenty more computers in your office, then calculate the cost of all with labor charges and then finalize the loan amount. Ensure to choose a business loan amount that you can easily repay.
Finalize Your Lender
Compare different business loans with their interest rates. Finalize the bank or financial institution that matches your criteria and offers you the best deal in terms of interest, loan term, repayment plan, customer feedback, etc.
Ready the Documents
Submit valid documents like P&L statements, income statements, balance sheets, tax returns, legal documents, KYC, etc.
Check Eligibility
As mentioned earlier, different lenders may have different eligibility criteria. Check for your chosen lenders and see whether you match all the requirements.
Write a Loan Application
Fill out the loan application form mentioning all the required details like business goals, industry type, the purpose of the loan, etc.
Follow Up and Wait
After submitting the application, wait for the lender to process it and disburse your loan.
Receive Loan Disbursement
If the lender approves your loan, you will get the loan amount to your business bank account.
Wrapping Up
Each lender may have different criteria for finalizing the loan approval. You should know the criteria, ready important business documents, demonstrate a repayment plan, etc., to increase the chances of loan approval.
FAQs
1. Who can apply for a business loan?
Ans. Self-employed individuals, private companies, partnership firms, etc, can apply for a business loan.
2. What is the use of business loan?
Business loans are the best for establishing a new business, expanding it, purchasing new equipment, using it for working capital, etc.
3. How much is the business loan interest rate?
Ans. It varies with the lenders, but most of them charge more than 10% pa.
4. Is there any minimum turnover requirement for a business loan?
Ans. Some banks provide business loans to companies having a minimum turnover of 40 lakhs and annual income of 1.5 lakhs pa.
5. What should be the business age to get a business loan?
Ans. The current business should be at least one year old. Some banks necessitate 3 or 5 years of total experience.
6. What should be the applicant’s age for applying for a business loan?
Ans. The applicant should be more than 21 years old and less than 65 years old.
7. What happens if I do not repay the business loan dues?
Ans. The consequences of defaulting can be severe, like late fees or penalties, dropping of the applicant’s credit score, legal action, seizure of collateral, loss of business reputation, etc.
8. Do I need collateral for a business loan?
Ans. If you are taking an unsecured business loan, then you don’t have to pay collateral. The lenders will evaluate your business on bank statements, business age, credit score, industry type, etc. Secured business loans are also available when you submit a collateral like a property.