“How I planned to repay the loan, was the first thing I was asked by my creditor,” recalls Shalini Mehra, proprietor of a mid-sized saree dealer in Rohtak, Haryana.
While it is one of the many questions creditors ask while approving small business loans, the list is quite comprehensive.
Securing funding for business is a challenging task. Hence, thorough preparation on your part can go a long way in the loan application process. Below is a guide of the possible questions you need to answer while opting for small loans.
What Is Your Business Plan?
Creditors base business loan eligibility criteria on the business plan. “The focus is to show the opportunity the lender finds attractive,” says Naresh Pradhan, mortgage loan officer of a reputed NBFC institution.
You must also highlight adequate contingency schemes to give your plan a more reassured look. Considering the various socio, economic, and political factors will help you develop a concrete plan.
How Much Money Do You Need?
This is an obvious question, which requires a careful answer. “A correct estimation of the funds shows fiscal awareness and entrepreneurial maturity on your part,” opines Naresh. You must break down the use of money at each stage of development to enhance the chances of funding.
At Bajaj Finserv, you can get a business loan worth Rs. 30 lakh at a competitive rate of interest.
What Is Your Business Financial And Credit Score?
Keep the lending history of your business with you while approaching your lender. It includes:
- Current and past loans
- Debts incurred
- Investment and credit card accounts
“Along with business financial details, your lender will look at your credit score. A credit score highlights the financial health and trustworthiness of your business. It is one of the most vital parameters that can decide interest on business loans,” points out Naresh.
Shalini says, “I knew the importance of a good credit score. So, I paid bills on time, maintained a healthy cash flow and invoiced my bills in the name of my company.”
Where is the Audited Financial Statement of Your Business?
Audited financial statements include the balance sheet. It lists out your business assets, liabilities, and capital. “When you present an audited statement to your creditor, there are chances of business loan interest rates going down,” says Naresh.
Because of extra steps taken by an external auditor, these statements are more likely to be error-free. You must at least have profit and loss statements of the past three years.
Where Are Your Personal Financial Details And Credit Score?
Note that your personal financial details also form an important part of the queries made by potential lenders. Personal financial details include your net worth and details on assets and liabilities like investment accounts, credit card accounts, vehicle,and home, among others.
Naresh says, “With increasing cases of bad loans, lenders have become more cautious and use personal financial details and credit score to judge business loan eligibility criteria. A good personal credit score has a positive impact on the creditor.”
How Will You Use The Loan Proceeds?
Lenders need to know how will they get a return on their investment. A careful approach on your part in investing the loan amount for a productive business operation goes a long way in securing the funds at competitive interest rates.
“A detailed plan for the expenditure of loan amount is critical in the application process. Expenditure data along with ROI figures allay fears on the part of the investor,” quips Naresh.
Does Your Business Have The Ability To Repay The Loan?
From an investor’s point of view, loan repayment is the biggest concern. As a businessman, your best bet is to list out similar profitable ventures in the past.
“When I faced a similar question, I demonstrated my expertise and research done in the field where I intended to invest the funds,” recalls Shalini.
Some lenders ask for a collateral if there are doubts about repayment. We, at Bajaj Finserv, don’t need any collateral while processing your loan application.
What Is Your Repayment Strategy?
The chances of loan approval hinge on your repayment strategy.
“Lenders need a clear strategy to gauge the safety of their investment. They want reassurance that you will survive the difficulties of business and still repay the loan,” opines Naresh.
This EMI calculator can help you plan your repayment strategy.
A business loan interview can work to the advantage of both the lender and borrower. While it helps a lender better understand the prospects of future investment, it gives the borrower a chance to introspect about the proposed venture.