Getting a small business loan is a hurdle for businesses, mainly due to the tight eligibility and lending standards laid by the lenders. However, obtaining a business loan is crucial for the growth of the business and to cover day-to-day expenses.
Well, finding, applying, and getting a loan can be difficult and hectic for the borrower. It generally involves these five steps:
Why you Need Money: Ask yourself why you need this loan and how will this help you grow your business.
Finding the Right Loan Product: Find and select the right loan product according to your needs.
Finding the Best Lender: Compare the different options available and choose the best one.
Business Loan Eligibility: Gather information regarding the loan eligibility and required CIBIL score.
Get the Documents: Search for the list of required documents and gather them.
Now, let’s take a look at how to get a loan for business in depth:
Why do I need Loan?
This question is asked by most of the lenders. The lender will ask you this question before deciding to lend you money. Your answer can be:
- To start a business.
- To manage everyday expenses.
- To grow business.
Which is the Right Loan Product?
Also Read: Different Types Of Business Loan In India
Your reasons for needing the loan will lead you to decide the best loan as per your need.
Generally, cash flow is required to decide your eligibility for the loan. So, if you are in the first year of your business, it is likely that your loan application will be rejected. For a business which is in operation for more than 2 years, there are many banks and NBFCs offering best business finance, such as term loans, machinery loans, flexi loans, working capital loans, etc.
Who is the Best Loan Lender?
You can avail business loans from a number of lenders, including banks, NBFCs, and online lenders. All these lenders offer different types of loans, including working capital loan, capital loan, flexi loan, term loan, equipment loan, etc.
You are suggested to approach loan shopping just as you approach other types of shopping. Look for all the lenders, determine which is the best, and compare it with others. This will help you qualify and choose the loan with the lowest interest rate and APR.
Notably, traditional banks usually offer limited loans whereas NBFCs and online lending companies have different loan products. Additionally, small businesses find it tough getting loan for business approved from banks since they have stringent eligibility criteria. Also, it gets longer to get funds from banks as compared to NBFCs.
You can opt for NBFCs when you lack collateral since they offer business loan without security. Also, the best option when you need quick business funding and you lack time in business. NBFC business loan approval rates are higher and they offer fast loan disbursal.
What is Business Loan Eligibility?
A number of things matter while availing a business loan:
Credit Score: Your CIBIL Score or credit score is one factor which will determine your eligibility for a loan for business . It will determine if you qualify for a loan or not. The minimum CIBIL score for a loan for business is 650. You can check your CIBIL score from time-to-time and work towards improving it if is less than 650. Ensure that your score is more than the threshold, you can also have a look at this guide to improve CIBIL score.
Business Vintage: Lenders like the business vintage—the number of years you have been operating the business, to be not zero. You need to be in business for at least 2 years to qualify for a loan.
How much Money you Make: An annual turnover of minimum 10 lakhs is usually required for a business loan.
Would you be able to Repay Loan: Have an insight into your business’s financial—cash flow and evaluate if you would be able to repay the loan or not. Also, ensure you would be able to pay monthly EMIs. You can calculate EMI through business loan EMI calculator.
Also Read: MSME Loan in 59 Minutes: How to Avail it?
Once you’ve chosen the best loan option and lender for you, now it’s the time for you to apply for a loan. Remember, you must not apply for multiple loan for business as it can have a negative effect on the CIBIL Score. You must apply for multiple loan at least in a gap of 3-4 weeks.
Depending on the lender, you would need to submit the following documents:
- PAN card
- Last 12-months bank statement
- Last 2-3 year ITR
- Business place address proof
- Residence address proof
ZipLoan offers easy MSME loans specially designed to meet the needs and requirements of Micro, Small, and Medium Enterprises. Our terms and conditions are easy to meet and we disburse loan within a few working days.