The versatility of a small business loan enables you to use it in multiple ways. You can use it as seed capital when setting up your company, as working capital for ensuring smooth cash flow or as an investment for business expansion.
Availing such loans has also become easier owing to the growing number of lenders in India. They offer various types of loans under their business loan category. Apart from working capital loans, there are machinery loans, SME and MSME loans, business loans for women, etc.
Furthermore, you can also avail additional benefits if you are an existing customer. For instance, Bajaj Finserv provides their pre-approved offers to their existing borrowers. Pre-approved offers reduce the loan processing time by removing the majority of hassle. All you have to do is provide some of your essential detail to check out your pre-approved offer.
Although the number of lenders is high, your loan application might still get rejected. You have to ensure the fulfilment of specific criterions to improve your chances of a small business loan approval.
Here are the most important of them:
- A feasible business plan
You have to create a prospective and achievable business plan if you are going to use the loan as seed capital. An effective business plan to obtain a small business loan must include the following:
- Business overview
You have to provide an overall description of your business, what it does, and its USPs.
- Products and services that you offer
You have to give a detailed outline of your products and services and how it is more lucrative than your competition.
- Description of your organisation and management
Include all the details of your business heads, their professional qualification, and their designation. Also, mention any third parties who can have a unique contribution to your business.
- Marketing strategies
How you market your products or services will also play a role in your small business loan approval.
- Financial estimates
Your financial overview and forecasts will be the most crucial aspect for the would-be lender. You must include your current and predicted profit and loss statement, cash flow statement, balance sheet, and other financial statements. The more favourable the numbers are, the more chance you will have to get your business loan approved.
- Improve your credit score
Having a good credit score will make you eligible for a business loan.
You can follow the tips mentioned below to improve your credit score:
- Use your credit card every once in a while.
- Get a secured loan.
- Pay your credit card bills and loan EMIs in due time.
- Never utilise more than 30% of your credit card limit.
- Always pay the total credit card bill due and never the minimum amount.
- Don’t make multiple loan applications at once.
You can also negotiate your small business loan interest rates and have them lowered with a credit score of 750 or above.
- Lower your fixed monthly obligations
Having fixed monthly obligations equal to or less than 50% of their income will improve your odds of getting a business loan sanctioned. The primary reason behind this is to make ample room in your income to pay your loan EMIs. Some financial institutions may conduct a Fixed Obligation to Income Ratio (FOIR) check before approving the loan.
- Ensure you have a business vintage
Your existing business must be 3 or more years old at the time you apply for a business loan.
- Provide all the necessary documents
You have to get your company registered. Lenders will require proof of your business. Documents like partnership deed, GST registration, trade license, Memorandum of Association, Articles of Association, etc. are some that you may need to furnish.
In addition to the above, you will also have to provide KYC documents like Aadhaar, PAN, Voter ID, Passport, address proof, and bank account statements. You also have to provide income tax returns and audited turnovers for the previous year in case you have an existing business.
Follow these tips to improve your chances of getting a small business loan. Plan and execute the capital to take your business to new heights.
Author Bio:
Uday is a passionate blogger. He has expertise in writing finance articles. He have been serving society as a financial adviser. He loves keeping himself up-to-date with the news and happenings around. He is always open to learning and shares his experiences on his Greetings of the Day.
