Getting a Business Loan: Simple Tips to Get Qualified

John Cena June 13, 2024 Uncategorized Leave a comment 5 Views

When you run your own business, regular cash flow is crucial not just for smooth operations but also for your peace of mind. As an entrepreneur, whether seasoned or beginner, getting a business loan can be a practical option. Purchasing raw materials, paying salaries, going for an extension/ expansion etc. becomes more streamlined when you have some financial cushion. Over the past few years getting a business loan in India has become easy, but there are still a few things that you need to be careful about.

Here are some easy yet efficient tips that can come in handy if you plan to apply for a business loan.

Applying for a business loan can be streamlined and successful if you follow these straightforward and effective tips:

1. Understand Your Loan Purpose

Clearly define why you need the loan, such as for expansion, inventory purchase, or equipment upgrades.
Calculate the exact amount you need to avoid borrowing too little or too much.

2. Boost Your Credit Scores

Personal Credit Score: Aim for a score above 700 to improve your chances.
Business Credit Score: Establish and improve your business credit by paying bills on time and keeping debts low.

3. Prepare Key Financial Documents

Income Statement and Balance Sheet: Show the financial health of your business.
Cash Flow Statement: Demonstrate your ability to manage and repay the loan.
Tax Returns: Provide at least two years of both business and personal tax returns.

4. Craft a Solid Business Plan

Executive Summary: Briefly describe your business, market, and goals.
Financial Projections: Include revenue, profit, and cash flow projections for the next 1-3 years.
Marketing Plan: Detail how you plan to attract and retain customers.

5. Consider Collateral and Guarantees

Be prepared to offer assets such as property, equipment, or inventory as collateral.
Be ready to personally guarantee the loan if required.

6. Research and Compare Lenders

Traditional Banks: Best for established businesses with strong credit.
Online Lenders: Quicker and more flexible, though often with higher interest rates.
Credit Unions: Offer personalized service and competitive rates.
SBA Loans: Government-backed loans with favorable terms, though they require more paperwork.

7. Organize Required Documentation

Legal Documents: Have business licenses, registrations, and ownership agreements ready.
Resume: Highlight your experience and qualifications relevant to the business.
Loan Application Form: Fill out completely and accurately.

8. Show Your Ability to Repay

Debt-Service Coverage Ratio (DSCR): Demonstrate that your income covers your debts, with a DSCR above 1.25 being favorable.
Consistent Revenue: Provide evidence of stable revenue streams.

9. Build a Strong Relationship with Your Bank

Maintain regular communication with your banker about your business’s progress.
Manage your business accounts responsibly to build trust.

10. Be Ready to Negotiate

Compare and negotiate interest rates and loan terms to get the best deal.
Understand and negotiate any associated fees to avoid hidden costs.

11. Explore Alternative Financing Options

Lines of Credit: For flexible borrowing for short-term needs.
Equipment Financing: Specifically for purchasing equipment.
Invoice Financing: Advances against your accounts receivable can provide quick cash flow.

Do your homework

When you explore the market for instant business loans, you will come across multiple options. Different types of business loans are available, you will have to choose the one that is most in line with your business needs. Chalk out your needs, consider the loan amount, pre-payment tenure, your repaying capacity, interest rates etc., and then decide.

Make sure you have a decent CIBIL score

One of the first things you need to check when you apply for a business loan is a good CIBIL score. In case your score is less than 600, your loan application may not go through. In this scenario, it is suggested that you wait and work on rebuilding your CIBIL and only then apply for a loan.

Have your business plan ready

When you ask for a loan, your lender will be interested to know how you plan to use the money. Therefore, a solid business plan is crucial for your loan application to get through. Make sure your plan is accurate, thorough and clear. A well defined plan will work as an assurance to the lender and enhance your credibility.

Make sure that the paperwork is in order

An important step to follow is to keep your paperwork in order. Make sure you are clear about the pparework required by your lender. Most companies will ask for- PAN Card, Aadhaar Card, bank statements, ITR reports, company PAn and registration. However, some more documents may be asked.

Check your eligibility

Different kinds of business loans may come with different sets of eligibility criteria. The lender maay want to check your paying capacity depending on the kind of loan and loan amount you are asking for. Your age, annual turnover, annual revenue will be checked by the lender.

Explore online business loans

Thanks to the digital landscape today, getting an online business loans can be a matter of a few clicks. Lendingkart takes the ease of getting a business loian to a difefernt level altogether. With the business loan app, you can easily and instantly get a loan of up to ₹2 crores.

Securing a business loan can be a crucial step in growing your business. Here are some simple tips to help you get qualified:

1. Understand Your Needs

Loan Purpose: Clearly define why you need the loan (e.g., expansion, inventory, equipment).
Amount Needed: Calculate how much you need and ensure it aligns with your business plan.

2. Improve Your Credit Score

Personal Credit Score: Lenders often look at your personal credit score. Aim for a score above 700.
Business Credit Score: Establish and build your business credit. Pay bills on time and keep debts low.

3. Prepare Financial Statements

Income Statement and Balance Sheet: Show your business’s financial health.
Cash Flow Statement: Demonstrates your ability to repay the loan.
Tax Returns: Provide at least two years of business and personal tax returns.

4. Create a Solid Business Plan

Executive Summary: Concisely describe your business, market, and goals.
Financial Projections: Include revenue, profit, and cash flow projections for the next 1-3 years.
Marketing Plan: Show how you plan to attract and retain customers.

5. Collateral and Guarantees

Collateral: Be prepared to offer assets such as property, equipment, or inventory.
Personal Guarantee: Be ready to personally guarantee the loan if required.

6. Research Lenders

Traditional Banks: Good for established businesses with solid credit.
Online Lenders: Often quicker and more flexible, but may have higher interest rates.
Credit Unions: Can offer personalized service and competitive rates.
SBA Loans: Government-backed loans with favorable terms but more paperwork.

7. Gather Required Documentation

Legal Documents: Business licenses, registrations, and ownership agreements.
Resume: Highlight your experience and qualifications.
Loan Application Form: Fill out completely and accurately.

8. Demonstrate Ability to Repay

Debt-Service Coverage Ratio (DSCR): Show that your income covers your debts. A DSCR above 1.25 is favorable.
Revenue Consistency: Consistent revenue streams increase lender confidence.

9. Maintain a Good Relationship with Your Bank

Regular Communication: Keep your banker informed about your business’s progress.
Account Management: Manage your business accounts responsibly to build trust.

10. Be Ready to Negotiate

Interest Rates and Terms: Don’t accept the first offer. Compare and negotiate better terms.
Fees: Understand and negotiate any associated fees.

11. Consider Alternative Financing Options

Lines of Credit: Flexible borrowing for short-term needs.
Equipment Financing: Specifically for purchasing equipment.
Invoice Financing: Advances against your accounts receivable.

By following these tips and being well-prepared, you can increase your chances of getting approved for a business loan and securing the funds you need to grow your business.

Let’s Conclude

There’s no denying that cash flow is the life-blood for a business. Following these tips can be helpful in getting you a business loan easily. However, do keep in mind that taking a business loan should be a well-thought-of decision. While such loans can help you sail through a financial crunch, you cannot rely on them to run your business. Be aware of your options and the repayment procedures.

Read More: Getting a Business Loan: Simple Tips to Get Qualified