Applying for Your First Business Loan? Here’s What You Should Know
The availability of funds is an important factor for the success of any enterprise. Initially, you may use your savings to meet the capital needs of your venture. However, to grow your business further, you will need to rely on other sources of finance.
Several banks and non-banking financial companies (NBFCs) offer loans to help small businesses grow their ventures. These are available at competitive rates and have many benefits.
Here are some things you must remember as a first-time business loan applicant.
Clear understanding of your business
Having complete clarity of your business is important. You should be able to clearly answer questions like what the business profile is, who your clients are, what the profit margins and future growth trends are, and what the purpose of loan is. Lenders are confident when you have all the replies and are they are willing to approve your loan application.
Financial institutions consider the following three factors when you apply for a business loan in India.
- Credit score
You must have a high credit score to ensure your loan approval is not rejected. If you have a higher score, the possibility of approval increases. Furthermore, you are able to avail of the loan at a lower rate of interest. You must ensure you do not default on credit card payments or loan installments to maintain a good credit score.
Lenders often scrutinize your books of accounts, which include the profit and loss (P&L) account and the balance sheet. The P&L account provides an overview of your business operations and the margins. The balance sheet helps lenders gain a clear understanding of your business. It is important you have a reliable and experienced accountant to maintain your books of accounts in proper order.
3. Business plan
An important requirement when you apply for a business loan is a plan. This shows the goals of your business, allocation of resources, financial information, future projections, and fund requirements. It is crucial you create the business plan prior to applying for the loan.
Lenders often require knowing how much money you need and the purpose of the same. The loan may be used for several purposes, such as capital finance, operational growth, working capital needs, and recruitment. You must furnish all the details to justify the need for funds. Some lenders may inspect the financial records to determine if you actually require the money for the outlined purposes.
Contrary to popular belief, availing of business loans in India is not difficult. It is recommended you have all the information and documents needed along with the application form. This reduces the time taken to process your application and approve the loan. You may also consider applying for fast business loans online. Lenders often provide approval and disburse the money within a few days of receiving your application when you apply online.
So, avail of a loan today and take your business to new heights of success.