Lack of fund is one of the main reasons behind failure of many startups and small businesses. Enterprising individuals even with innovative business ideas often struggle in materialising their projects because of lack of funds. Even when a venture takes off and begins to grow, it needs extra funds at some point or other to grow and to enhance its operations and pay its suppliers.
A business loan in India is the financial product from banks, which helps small and medium enterprises (SMEs) to rise by, providing them capital. One can say that Business loans are one of the major factor which helps SMEs to grow and flourish. It’s a fact that 70% of the startups shut down within their first year owing mainly to lack of funds. Although Business Loans are easily available to entrepreneurs but it’s not that easy how it seems. Lenders are not fool, they lend only after analysing all the risk factors involved in your business including the profits. Hence being an Entrepreneur you have to take care of many things and you have to improve odds in your business in terms to get the Business Loan without any hassle.
The gap between demand and supply for loans is gradually being removed with the introduction of new age FinTech lenders/companies. They provide quick loans with or without collateral for new businesses. FinTech companies help entrepreneurs in harnessing the full potential of their business ideas. However, the competition in this field continues to be huge, and applications for business finance are still approved based on creditworthiness and many other factors.
Tips to Improve Your Odds for Getting a Business Loan
Written Business Plan
A written plan is must to have thing. It is always important to plan your business but it is equally important to have it on papers. This helps you in order to get funds. Whether it an investor, Bank or any private lender, no one will lend you money unless and until they are full satisfied that you can repay it on time. As the repayment is totally dependent on the cash flow in your business. Hence it’s very important to convince your lenders by showing them your business plan. Your business plan should include all the business aspects such
- Inventory purchase
- Your client’s payments
- Salary to staff
- Any kind of expenditures
- Your Funds
- Future plans
Know as Well as Show How are You Going to Use the Money
Just saying “I need money to grow my business,” is probably not going to get you it. Before you decide to go for small-business loan or any other funding, make sure you know exactly what you will doing with that money. A specific and certain idea about where you’re going to put the lenders fund.
Check Your Credit Worthiness
Banks, credit unions, and online lenders have certain criteria of their own for approving a business loan. But checking the applicant’s creditworthiness is one which is common amongst all. Checking for both applicant’s personal as well as business credit records is expected in this case. If the personal and business credit scores both are good there is nothing to worry about. But if it is on the low side, raise them by paying down credit cards and other debt and settling any liens against you or your business. As a bad credit score is a indication that you were not good with repayments of your previous loans. Bad repayment history introduces a risk factor and lender would not be ready to lend you. So first try to improve your CIBIL Score and then apply for a business Loan.
Be Organized and Over-Prepared
Organizing your business and your business plans plays very important role in whether you Small Business Loan will be approved or not. Lenders may ask for a specific piece of information regarding your business, being a business owner you need to be capable of proving the answer that too on time. A lack of organization shows that you’re unprepared and hence increases the risk to the lender.
The best thing you can do is you should be prepared by having every possible piece of information or documentation that your lender could ask for.
Research is a very important thing to do before you apply for a business loan. You should do a research on all the lenders available. Your research should include comparing all the lenders on the basis of interest rate at which one is ready to lead, processing fees, any other charges and loan tenure. Go with only those you are suitable you and your business and with whom you can save even on interest.
Have Your Documents Ready
Lenders ask to provide several years of business tax returns and your debt-to-equity ratio, which is the amount you owe creditors divided by the financial value of your business. Be truthful. The lenders can also can ask for your business licence, your bank account statement along with several other documents. In order to get your loan approved be ready with all these documents.
Getting approval for a small business loan is not an easy task. Being an applicant and owner of the business too it’s your responsibility to convince the lender that you’re worth the risk associated with lending money. Be sure to address your shortcomings/weak points and highlight the positives to improve your odds of being approved.