Requirements For Getting A Small Business Loan
Getting a business loan can be challenging. Whether you are looking to finance your business expansion or need a loan to start a business, banks and lending institutions can be rigorous in their requirements for a small business loan. While many documents are mandatory across lenders, some lenders may ask you for additional details when evaluating your application for SME financing.
Here are the basic requirements for a small business loan to keep in mind before you apply:
- Find Out Your Eligibility For Acquiring A Business Loan
Find out whether you are eligible to apply for a business expansion loan. Is yours a sole proprietorship or a partnership firm? Is it a private or public limited company? Or are you a chartered accountant or a self-employed professional? The requirements for a small business loan will depend on the type of business you own.
- Keep The Documentation Ready
Create a list of the documentation required before you approach a lender for getting a business loan. Some common documents include a fully filled application form, a photograph of you and your co-applicant, income details, bank account statements, KYC documents, business vintage for 5 years and certificate of practice (as business proof). You can make the application process for a business expansion loan easier on yourself by keeping your records up-to-date and readily available. This way you don’t have to rush to put everything together at the last minute.
- Prepare A Solid Business Plan and A Compelling Resume
Lenders also want to know how getting a business loan – and what you’re spending it on – will support your growth plans. This is where a business plan comes into play. When applying for a business expansion loan, you should submit a strong business plan that shows the lender how the funds will deliver a revenue uplift that comfortably covers the cost of EMIs. Your business proposal should include a summary of your company description, service or products, market of operation, industry analysis, growth strategies and future projection, SWOT analysis, financials and so on.
Some lenders may also require resumes of the key management personnel to determine whether they qualified to earn the amount of returns claimed and repay the loan amount in full and on time. Therefore, the resumes you submit should describe who runs the business and their experience level in a polished and in-depth manner.
- Be Sure To Have A Strong Credit Score
Be sure to pay all your credit amounts and other pending credits and loans on time so as not to have an outstanding payment on your account. If it’s a relatively new business, and you do not have credit history of the company, your score will be calculated based on your payment history, the amounts you owe on your credit cards and other debts and also how long you’ve had credit.
- Decide What Kind Of Loan You Need
Before applying for a loan, be sure of the kind of SME financing you need and what you are going to use it for. One of the most common reasons for getting a business loan is to support cash flow. Do you want funds to pay overheads while you wait for a client to settle an invoice? Do you want to finance the purchase of new equipment to fulfil a new contract or fund an additional office?
Study the different kinds of loans available to you and analyse the benefits and advantages of that loan available with different lenders. Choose the one which best suits your needs.
- Check Whether You Are Required To Pledge Collateral
Does a lender want you to pledge any collateral or bring in a guarantor before approving your business expansion loan? Lenders do this to protect their loan investment in the event of a business defaulting on repayments. What you need to provide as security depends on the size of the business expansion loan that you’ve applied for. The asset you provide as a collateral for getting a business loan can be anything from property to equipment and inventory. If you are unable, or unwilling to do so, chances are a lender would look sceptically at your application for SME financing. Fortunately, small business loans supplied by some lenders, such as Bajaj Finserv, don’t require collateral or a guarantor.
Also Read : All You Need To Know About SME Loans In India
Bajaj Finserv offers small business loans up to Rs. 30 lakh at low interest rates to support new businesses and start-ups.