Business Loans can be of great help when it comes to funding an already existing business or financing a start-up business. Going for a business loan helps you to get access to the required funds in a no hassle way. Moreover, the wide availability of business loans from banks and NBFCs has made it even easier for the business owners and entrepreneurs to move ahead in their business. Apart from these facts being aware of the potential business loan requirements is one of the basic and fundamental parts of preparing a successful business plan with a business loan application.
The business loan requirements one face varies based on the chosen form of funding. We’ve compiled a guide to make you understand the Top 5 Business Loan Requirements you might come across.
- Loan purpose
- A full proof Business plan
- Business Licenses & other Legal Documents
- The desired loan Amount
- Repayment Terms and Prepayment Penalties
1. Loan Purpose
The purpose behind opting the loan totally depends on your requirements. It may be hiring new staffs, launching a new product or opening a second store, having a price point as close as possible (approximate) to what you’ll really need is always important and it can be a key point for your success. Not having an approximate idea of the required finances can result in two things. First, you may borrow less and the second is you may borrow more. Both are not good from a business point of view. You can’t afford to pay more on interest for the amount which you don’t need. When borrowed less, it would not be enough to fulfil your requirements. Hence, knowing your exact loan purpose is one of the main required things for a business loan.
2. Business Plan
A business plan is always required to be submitted along with the filled business loan application form. According to a business loan requirement, one should include the following points in your business plan
- Company description
- Market analysis
- Complete set of projected financial statements.
- Profit and loss statements.
- Cash flow and balance sheet.
- Required funds
- Management strategies
- Marketing Strategies
3. Business Licenses & other Legal Documents
A business loan application always requires some legal documents to be submitted along with the filled application form. These licenses are proof that your business is a registered and legal one. So, before you apply for a small business loan it is very important to make sure that you have the following legal documents –
- Registrations documents of your business
- Business licenses
- Franchise agreements (if any)
- Articles of Incorporation
- Copies of contracts if you have third parties
- Commercial Leases documents (if any)
4. The desired Loan Amount
The loan amount you need through the business loan is very important to be mentioned. And this can be only known to you if you know where and how you are going to use this money. If you are planning to buy new equipment, then you should be aware of the prices of the equipment including the installation price. All these things become very clear and crisp when you have a full proof business plan as mentioned in the first point itself.
5. Repayment Terms and Prepayment Penalties
Repayment plans vary from bank to bank, and the same happens with various terms and penalties related to loan repayment. it’s a basic business loan requirement and your responsibility too to know & understand all the terms and condition well before signing the loan agreement with any particular lender. Being an applicant one should always ask if there is any charge or penalty for repaying the loan early. Understanding these helps the borrower to save money on their business loan and helps to avoid unexpected fees and penalties in the future.
The above-mentioned points are very important to know a business loan requirement before opting for a business loan. Knowing and understanding the above-mentioned points makes your borrowing worth and can result in more profit for the business with the help of a business loan.