Lack of funds is one of the main reasons behind the failure of many startups and small businesses. Enterprising individuals even with innovative business ideas often struggle in materializing their projects because of a lack of funds. Even when a venture takes off and begins to grow, it needs extra funds at some point to enhance its operations and pay its suppliers.
Key points-
- Build a good personal & business credit score before you apply for the loan.
- Keep all the documents ready
- Have a concrete business plan
- Know the lender’s minimum eligibility criteria
- Analyse your affordability and repayment capacity
Small Business Loan in India
A business loan in India is the financial product from banks, which helps small and medium enterprises (SMEs) to survive and grow by providing them capital. And it’s a proven fact that Business loans are one of the major factors which have helped more than 70% of SMEs to grow and flourish.
When you will look at the figures, you will get to know that 70% of the start-ups shut down within their initial years of owing mainly due to lack of capital support. Although Business Loans are easily available to entrepreneurs, still it is not that easy to get approved for one how it seems. Lenders approve any loan only after analyzing the risk factors involved, eligibility, growth potential, and previous repayment history of any business. Hence being an Entrepreneur you have to take care of several things and need to improve odds in your business in terms to get approved for a Business Loan without any hassle.
How FinTech companies can help your business?
The gap between demand and supply for loans is gradually being reduced with the introduction of new-age FinTech lenders/companies. They provide quick loans with or without collateral for new and small businesses and 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
While looking for business funding, it is always important to plan your business and sketch your raw plans on paper. This not only helps you to convince the lender but can also help you to get funds. Whether it is an investor, Bank, or any private lender, no one will lend you money unless and until they are fully satisfied and see repayment potential in your business. As the repayment is 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
- Profit
- Your Funds
- Future plans
Show how You will be Using the Borrowed Money are
Just saying “I need money to grow my business,” is probably not going to get you the funds. Hence, before you decide to go for a small-business loan or any other funding, make sure you know exactly what you will be doing with that money. A specific and certain idea about where you’re going to put the lender’s fund put you one step ahead for getting approved for it.
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 that 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 low, it indicates that you were not good with repayments of your previous loans. Bad repayment history introduces a risk factor and the 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 Prepared
Organizing your business and your business plans play a very important role in your business loan approval. Lenders may ask for a specific piece of information regarding your business, and being a business owner you have to be capable of proving the answer and 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 well
Research is a very important thing to do before you apply for a business loan. You should research about all the lenders available, and it should include a comparison between all the lenders based on the interest rate processing fees, any other charges including the tenure period. Go with the one who is suitable for you and your business requirements and which 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. Well, be truthful about these. The lenders will also ask for your business license, your bank account statement along several other documents. So, to get your loan approved be ready with all these documents.
Getting approved for a small business loan is not an easy task. Being an applicant and owner of a business 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 to make it realistic and highlight the positives to improve your odds of being approved.
