Qualifying for a business loan is easier when the business owner is prepared. Whether he is applying for a small business loan with the bank or an NBFC, the applicant should be familiar with the lender’s requirement. Knowing all the criteria will save time and effort, and help in getting the cash at the time of need.
Let’s take a look at the five steps to qualify for a business loan.
Build Credit Score
The personal credit score ranges between 300 and 900. It is a numerical representation of the applicant’s ability to repay personal debts, such as personal loans, credit cards, etc. The five common factors used in lending decisions are the payment history, credit card and other debts, tenure of the credit, types of credit, and credit inquiries. The personal credit score is considered to determine how the applicant manages his debt.
Eligibility & Requirement
Meeting the lender’s qualification and requirements will make the application stronger. Some lenders may consider the application if the business is over performing in one area and under performing in another area. But the best chance of getting the application approved is meeting all requirements and exceeding all the minimums. The typical criteria that have to be met are credit score, business vintage, and annual revenue.
5 Financial Habits To Get Small Business Loan Application Approved
Gather Financial Documents
All lenders generally ask for a wide range of financial and business documents during the application process. They include:
- Income tax returns for the last 1-2 years
- Bank statement for the last nine months
- Business address proof
- Residence address proof
- PAN and Aadhaar card
All these documents are proof of the information provided in the loan application form. It is recommended to apply for a business loan online as then the loan application and documents can be submitted online. It will save time and effort.
Some loan lenders would want to know how the loan amount will be used. They also want to know if the borrower has a strong ability to repay the amount. This is why they require a strong business plan that details the loan purpose and how it will help in increasing the profit. The business plan should also include current and projected financials, and also demonstrate the cash flow. A strong business plan will provide the lender some confidence in the business, and it will increase the chances of getting the application approved.
To qualify for a small business loan in India, the business owner is required to hypothecate collateral to back the loan amount. Collateral can be any asset, such as real estate, equipment, or inventory. It’s essentially a way by which the lender can recover the loses if the business owner defaults on the repayment of the loan. Said that, there are small business owners who cannot offer collateral. They can avail an unsecured business loan that does not require security hypothecation.
Now that you know the five steps to qualify for a small business loan in India, you can apply for the credit service and take your business to the next level.