A small business owner may face a liquidity crunch at any time. No matter how much he plans for the situation, it is an inevitable part of running a business. This situation can harm the business like no other. Therefore, it surely is a situation to worry about.
Having said that, the situation is not that a business owner can’t prepare for. Business owners put all their efforts to keep the company growing. But exhausted financial resources may hamper the business growth. At the same time, competitors may also take advantage of the situation. A business owner should not sit idle in these circumstances but fight the circumstances hard. He can either use the funds kept aside for contingency situations or avail a business loan.
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What is a Business Loan?
A business loan is a credit facility extended by financial institutions to the business owners in need. Several financial institutions offer a wide range of business loans, such as machinery loan, working capital loan, or capital loan. The credit facility helps in managing the urgent fund requirements on an immediate basis. Nevertheless, it can also be availed when a business is flourishing, and the business owner wants to expand his business.
Out of all the loan lenders operating in India, NBFCs have emerged as the most sought-after choice for small business loans. The lenders conduct their activities through online channels— website and mobile app. NBFCs follow a paperless procedure wherein the borrower has to provide the scanned copies of the required documents. If the applicant’s profile meets with the company’s eligibility criteria, the loan application is approved, and the amount is sanctioned within a few days.
Notably, NBFCs offer unsecured business loans for an extended period of 24 months. They have less stringent eligibility criteria when compared to traditional lenders. In addition to the CIBIL score, they verify the credibility of the applicant in a holistic fashion, by determining the bank transactions, business industry, and credit history of the borrower as well.
Business Loan Eligibility
Due to the rising NPAs and instances of frauds in the financial lending sector, financial institutions have become a bit stringent when it comes to business loan eligibility. Any slight discrepancy from the applicant’s side may lead to application getting rejected. Notably, since no lender wants to risk their money by lending it to a wrong individual, they have a set of eligibility criteria. The criteria help in verifying the applicant’s creditworthiness and thus, lower down the risk for the lender.
That being said, the NBFCs have easy to meet eligibility criteria, making it easy for the small business owners to get access to formal funding. The following is the NBFC business loan eligibility criteria:
- The business should be in operations for more than two years, at least.
- The business should have a minimum turnover of more than Rs. 10 lakh in the previous year.
- The ITR filed in the previous year should be more than Rs. 1.5 lakhs.
- The business premise and residence should be separate.
- The business owner should either own a house or business premise.
One major benefit of availing an NBFC business loan is that it is offered at minimal documentation. Also, the soft copies of these documents can be submitted online. Thus, the business owner can save time. To avail a loan from an NBFC, the following documents have to be submitted:
Bank Statements: the business owner needs to provide the bank statements of the previous nine months of current as well as a savings account. It will help the lender to determine the cash flow and financial behaviour of the borrower.
Income Tax Returns: the ITR for the past 1-2 years is also required. It helps the business owner to ascertain the income level of the applicant and accordingly calculate his eligibility. Notably, many financial institutions also use the ITR as the business vintage proof.
GST Returns: the applicant needs to provide the copies of GST returns, Sales Tax Returns, and VAT returns. Significantly, not all lenders require these returns.
KYC Documents: the copies of KYC documents, such as PAN, address proof, etc. are also required.
Loan Repayment Schedule: if the applicant is already running on a loan (personal or business), he needs to provide the repayment track for the same. It helps in tracking the repayment record.
In order to enhance the approval of the loan application, it is recommended that the applicant prepare all the documents beforehand. It will help in furnishing the documents as and when required by the lender.
How to get a Business Loan?
With online lenders, it is very easy to avail an SME loan. The applicant can apply for the loan online and submit all the required documents online as well. The following are the steps involved in availing a business loan online:
Visit the website of the lender or download his mobile App. Fill the online loan application form with all the required information. Generally, only basic information is required by the lender, and it won’t take more than 10 minutes to fill the form.
Next, upload the soft copies of the documents required by the lender. As discussed above, NBFCs require minimal documentation.
Lastly, the lender will process the application. He will verify the eligibility of the borrower and determine his repayment capacity. Accordingly, the lender will approve or disapprove the application.
Upon approval of the form, the sanctioned funds will be transferred in the borrower’s bank account.
Thus, one can conclude that business loans are very helpful for a business owner in need of urgent funds. Now that you know the loan eligibility and documents required for the loan, you can make a choice accordingly.