If you’re planning to grow your small business, you need an infusion of cash to carry out various activities that will help you to push your company in a positive direction. Such small business loans can be obtained from multiple traditional banks, lenders, and NBFCs. However, when raising business funding, you need to be fully aware of what the lender requires to grant your small business loan. The following ten steps will guide you through your business loan process easily.

business loan

Determine How Much You Need and Why

It is the first and foremost question you need to ask yourself when you’re planning for small business loans. It is the question most lenders will ask you, and you should be able to justify your debts. Determining ‘how established your business is’ will help you analyse the amount you should apply for. Don’t guess the amount that you might need; investigate the reason for your business funding from the following categories:

  • Purchase inventory/raw material
  • Purchase machinery/equipment
  • Expand/enhance infrastructure
  • Hire staff/ grow team
  • Marketing and advertising expenses
  • Pay other business expenses

This analysis will enable you to afford your monthly repayment and interests without any difficulty.

Understand The Different Types of Lending Options Available

Before diving directly into the pool of credit, mull over the different lending options available, and determine what’s best for your business. Yes, conventional lenders are always there. However, there is the growing popularity of unconventional lenders (such as NBFCs) to provide loans to SMEs & MSMEs. Apart from this, you can also consider the following options:

  • Credit unions
  • Crowd-funding
  • Personal Loans
  • Business credit cards
  • Non-profit micro-lenders

Choosing a smart lending option, with fast & hassle-free agreement policy, will be beneficial for your business loan process.

Research about Prospect Lenders

Today, the loan market is saturated with lenders, who are willing to lend you business funding. However, before you choose, do thorough research first. Then after viewing their pros and cons, shortlist the ones that are ready to offer you a loan at a competitive rate of interest. Generally categorizing, some of the lenders are banks, NBFCs, peer-to-peer lending, and venture capitalists. NBFCs, such as ZipLoan, offer several benefits for you to avail, apart from providing flexible tenor. Having a flexible tenor lets you repay the loan timely without putting a strain on your finances.

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Analyse your Credit Score

It is a mandatory step to analyse your credit score. This is so because, based on your credit score, lenders will contemplate your credit-worthiness and the level of risk associated. Therefore, before you apply for a small business loan, do check your company credit report (CCR). First-time loan borrowers, make sure that you’re maintaining your personal credit score; lenders might want to consider that as well.

Keep Your Financial Statements in Order

After keeping a check on your credit score, the next step is to make sure that your financial statements are in order. The lenders carefully review these statements, depending upon the nature and size of your loan. Therefore, you need to ensure that the Profit & Loss Statement, Balance Sheet, and cash flow statements are updated and correct. Have your financials reviewed by a certified public accountant (CPA) to improve your chances of getting your business funding.

business loan

Assemble all Business Documents & its Detailed Information

There are a bunch of business documents, apart from financial statements, that you should assemble if you want to succeed in getting your loan for business. So, prepare the detailed version of these documents well in advance.

  • Name of business
  • GST registration
  • List of business executives with their backgrounds
  • All the legal documents (memorandums, deeds, LLC, etc.)
  • Projected financial statements
  • License Agreements
  • Business credit report
  • Financial statements of principle shareholders/business owner
  • Business plan or Executive summary
  • Income Tax Return statement for past 2-3 years
  • PAN card and proof of identity

Keep Your Online Presence Up to Date

A small business lender will make use of the internet and social networking website to do a background check on your business. What your stakeholders and customers think about your business, information about the business owner online, and the perception and views of the industry about your business convey a lot to them. Hence, before you apply for your small business loan, make sure that everything is up-to-date online and in a favourable tone.

Decide What Security/Collateral(s) You Can Provide

It is advisable to decide in advance what security/collateral you can provide against the loan amount, in case the lender asks for it. The collateral is to safeguard the lender’s interests. Sometimes lenders ask for your personal assists to be provided as collateral. Avoid such lenders and scenarios as much as possible. Also, before using your assets as collateral, make sure you have evaluated its true-worth. However, in case you are in no position to provide collaterals, it is always advisable to go for an unsecured business loan. It is so because such small business loans give you the much-needed business funding without security.

Analyse Lender-Specific Loan Process

There is a different business loan process for different lenders. Make sure to analyse their loan application process thoroughly. When you know the process well in detail, it makes the application process a lot easier. Majority of the lenders these days have put their list of requirements and terms & conditions online. All you need to do is visit their website and gather all the information about their loan process and the benefits they offer.

Thoroughly Analyse the Terms of the Proposed Business Loan

The last step is to proof-read everything carefully before you sign on the dotted line. Because once you sign, there might not be ant coming back. So go through everything to check that the agreement states all the details and is not having any hidden clauses. Also, check about foreclosure charges, processing fee, the penalty fee, or other such hidden charges. Besides, it is beneficial to compare these terms with terms of different lenders as well to make an informed choice.