It is easy to apply for a small business loan when you are prepared. No matter if applied for a bank loan or an NBFC business loan, you need to be familiar with the lender’s requirement. Knowing the requirements of the lender in advance will save time as well as frustration.
The following are the steps which will help you qualify for a business loan:
Table of Contents
Build Credit Score
Credit score ranges between 300 and 900, and it helps the lender to evaluate your ability to repay the loan amount.
The score most commonly is based on the payment history, the amount owned on other loans and credit cards, types of loans currently availed, for how long is the credit availed, and the number of recent credit inquiries.
A credit score is an important criterion for the lenders as they want to see how the borrower manages his debt. Paying all the bills on time plays a crucial part in score building. Every individual can get free credit reports once a year.
The applicant can exercise the same power and check if there is any wrong information entered. He can get the information rectified to witness an immediate jump in the reports.
Know Business Loan Eligibility Criteria
Meeting lender’s minimum qualifications will make the application strong. Some loan lenders may offer flexibility if the applicant is under performing in one area but over-performing in another. Nevertheless, it is better to meet all the requirements or exceed all the minimums of the lender.
Online borrowers generally have minimum criteria in terms of CIBIL score, years in business, ITR filed, and annual revenue. But all lenders generally stay away from business owners with bankruptcy records in the past.
If the applicant is applying for a bank loan, he has to meet additional loan requirements. Banks generally have stringent eligibility criteria that sometimes make it difficult for the applicants to get their application approved.
Typically, lenders require a strong business revenue and credit score for business loan. Besides, the borrower should also not have made any defaults in the past.
Said that qualifying for online loans is easier. Online lenders have simple eligibility criteria, and they have less stringent requirements.
And they are also ready to provide loans to start-ups with as less as just two years of business vintage. Plus, online loans also come at very competitive interest rates.
Gather required Documents
Banks and other financial lenders generally ask for a wide number of documents to process the loan application. These documents may include:
- Income tax returns – personal and business
- Balance sheet
- Income statement
- Bank statements
- Driving license
- Business agreement
- AoA and MoA
- Business plan
- Financial projection
All these requirements can make getting a business loan time-consuming task. This may not be an issue if an NBFC business loan is availed. Besides, if there is need for faster money, online lenders are the best fit. They have a streamlined online application process and require fewer documents.
Developing a Business Plan
All loan lenders want to know how to use the money and how the profits will be generated to repay the amount borrowed. They require a strong business plan that not only details the vision and objectives of the organisation but also how business is expected to increase profits.
The business plan should also include the current and projected financials, and demonstrate the business’s cash flow to cover ongoing working capital requirements. This will provide the loan lender confidence in the business, and increase the chances of getting the loan approved.
The business plan should include:
- Company description
- Product and service description
- Industry analysis
- Management team
- SWOT analysis
- Promotional, marketing, and sales strategy
Offer Collateral
To qualify for a business loan, the applicant needs to provide collateral to back the loan amount. Collateral, essentially, is an asset that has some monetary value, such as real estate, inventory, etc. Basically, the lender can sell the asset to recover his loses in case of default.
Having said that, NBFCs don’t require collateral; they offer a business loan without collateral.
So, if you take care of all these points, you can apply for a small business loan effortlessly.
