As the economies around the world struggle to stay relevant in the highly unprecedented times of pandemic, the companies and their financial health are the natural corollaries. The aspiring entrepreneurs aka young start-up founders are also wary of taking a plunge for the uncertainty that follows. However, those who are tenacious to make it big are advised to rely on business loans to explore a vast array of opportunities that still exist. The loans come handy at every stage — starting a new venture, expansion and meeting any urgent requirement. Those who are keen to take a loan usually struggle with a slew of queries such as how to apply for small business loan, where to apply and who to approach, etc.
Most business loans for small and medium enterprises follow the same procedure where the lender asks for bank statements, assets in the business, financial statements, debt service coverage ratio, and credit scores of your account or business account. Besides some lenders may also want to know about your business plan and evaluate its efficacy. However, the major concern of the lender remains your ability to repay the loan.
Today there is no dearth of financial institutions offering business loans starting from banks, non-banking financial companies to new-age fintech start-ups. You can easily avail a business loan of ranging from Rs50,000 up to Rs. 2 crore depending on the business you operate and the lender. There is a wide variety of loans available in the market that can help you manage your business ranging from working capital loan, export loan, term credit to trade loan, and much more.
Is it too difficult to avail a business loan?
If you have the desire to take that first step and build something from scratch, then don’t look out anywhere. There is a plethora of financing options unlike before that makes the job of loan application process seamless as a result of technological development. You can check the business loan eligibility of various lenders and with a good credit score you should be able to avail a loan without many hassles.
Most importantly, these days loans are processed within 72 hours or less. So, there is no reason that your business will ever face a setback due to the crunch in funding. You just have to be a little more organised and meet the business loan eligibility criteria to get the loan disbursed within your time frame.
Is there a threshold up to which you can borrow?
You can easily avail a loan up to Rs 2 crore depending on the lender, but the amount of loan sanctioned also depends upon your repaying capacity. The lender accesses the affordability based on your income resource and past track record. Hence, there is no reason for you to delay your business plans and instead opt for a loan to fulfill your business ambitions.
Who can apply for a business loan?
Most lenders offer loans to self-employed professionals, self-employed individuals, sole proprietorships, private limited companies, and partnership firms. Also, note that most banks keep the minimum age of 25 years in the case of salaried applicants. The maximum age limit for the self-employed is 65 years.
Know the key points that can help you manage your loan application
Chalk out a clear plan
If you have a serious business plan and a roadmap then better to make the lender aware of the business plan. Some financial institutions may want to access your business plan for business loan eligibility, hence make sure that the plan has specific and attainable goals. Also, note that the objectives are realistic and mentions the sustainable growth forecast. A strong business plan can put to rest doubts of the lender.
Track credit score
Did you know that personal credit score can be one of the most important credentials while availing a loan? It can play a crucial role in the business loan application process, especially if you are applying a loan for the first time. If your credit score is good, the chances of getting a loan becomes brighter because you will remain the sole custodian of the business and a clean credit score helps in reinforcing the faith of the lender on you.
Those with multiple businesses can show the credit score of each business, thereby making it easier for the lender to evaluate your business loan eligibility. Make sure that you check your credit score and ensure there is no delay in credit card payments or outstanding loan EMIs defaults, etc. Your credit score gets impacted due to late payment and defaulting therefore it better to ensure you maintain a good financial track record.
Bank statements and ratings
It is important to ensure that your bank statements are intact because most lenders ask for the bank statements to access the financial health of the business as it helps in determining your repayment capacity. They try to track seasonal fluctuations in income, debt to income ratio, besides any tax obligations.
It is advised that you track the bank account and better if you can ensure average daily balance remains high and at the same time make sure that the business is yielding a steady volume of regular deposits and make sure that funds are not just sitting idle in the account.
Quality of Cash Cycle
For existing business it is important to assess the quality of cash cycle which means bad debts or write offs are taken care of. If you can maintain a balance in this it exhibits the strength of your business thereby increasing the chances of your loan disbursal.
Even as businesses come with inherent risks making the lenders wary but it should not deter businesses to avail loans. The disbursal of loans depends on how you showcase the potential of your business and convince them for the same.
Lastly, you should also compare the interest rate of banks and the disbursal time so that the loan gets processed as per your requirement. It is prudent to opt for a lender that offers quick service and charge less interest rate. It is also noticed that a transparent bank will be more flexible in its eligibility criteria. So, next time if the thought of opting for a loan crosses your mind then opt for a business loan and give wings to your dreams