With the wide availability of business loans and numerous lending options, small business owners are in a better position to get loans as compared to others. Though there are numerous options, still qualifying for a business loan is a bit tough. Hence, before you make the final decision to take a business loan, you must ensure that you are eligible for it and secondly it’s important to ensure that you are moving in the right direction. To ensure a 100% approval includes compiling a large number of documents along with proper timing and a good CIBIL.
Let’s know a few of the business loan checklists for your loan approval.
Loan Application Form
Business loan application forms vary from lender to lender, but basically, they ask you the same information for which you should be prepared to answer to avoid any rejections. The information which lenders ask includes:
- Why are you applying for the loan?
- How will you use the loan amount, if it is approved?
- What is the turnover of your business?
- What inventories/machinery you need to be purchased, and who are your suppliers?
- Who are your clients
- What other business debt do you have?
- Staff information
- Personal Background
All lenders require a sound field-tested strategy to be submitted with the loan application. The strategy ought to incorporate a total arrangement of anticipated budget reports, including benefit and misfortune, income, and monetary record.
The lender will acquire your acknowledgment report as a feature of the application procedure. They ought to get a credit report from each of the three significant customer CIBIL score offices before approving your loan application. Mistakes and imperfections on your credit report can hurt your odds of getting a loan affirmed. Hence, before you apply, you need to check for your CIBIL score yourself and try to clear the mistakes (if any) before starting the application procedure.
A business having low cash flow is considered as a potential risk by the banks. As you have a low cash flow, lenders may think that you’ll take care of your business expenses & costs first more than your credits. Hence, they find repayment a bit risky stuff and may hesitate to lend you.
Lenders check for the bank statement of the business and personal accounts to better know your finances. Doing this gives a clear idea of where you stand financially. Additionally, the lenders get to know about your personal and business cash flow.
However, the good thing is – you can improve your cash flow (in case it is low) by doing a cash flow analysis of your business, setting goals, and having a well-defined payment policy for your business.
Providing Collateral Options
At the point when banks request a guarantee for secured lending, they are looking to limit the risk involved. To guarantee that the specific insurance gives fitting security, the moneylender will need to coordinate the kind of security with the credit being made.
The collateral can be anything such as a real estate property or costly equipment or machinery of your business.
Providing Correct Documents
Depending on the lenders, you need to provide a few documents to them to prove to them the capacity of your business and your personal eligibility to repay it back. The documents required include- some legal as well as some personal documents.
The legal documents required are:
- Business licenses and registrations required for you to conduct business
- Articles of Incorporation
- Copies of contracts you have with any third parties
- Franchise license/ agreement
- Commercial Leases
- Documents from the local authority showing the permission (in case of industry)
The application forms may be used to prepare your projected financial statements
- Bank Statements
- Balance Sheet
- Income Statement
- Cash Flow
- Last year ITR documents
Comparing all Your Lending Options
Once you have decided that you will opt for a business loan, you need to conduct thorough research of what all borrowing options do you have? From nationalized banks to NBFCs and DSAs there are several lenders of business loans. To start with making a list of banks and lending institutions that are offering the kind of loans you need. Compare them based on loan amount offered, interest rate, flexible approval guidelines and simple terms & conditions. If you are not sure, take help from an expert.