During the functioning of the business, there might be a time when you would require some funds to meet the day-to-the day requirement of the business, like working capital, buying machinery, or for marketing activities, etc.
At this time a small loan will help solve all your business problems, you might be facing at that particular time.
A small business loan involves taking a loan of also a small amount to meet the needs of your business. The criteria for a small business loan depends from lender to lender, therefore, as a small business owner it is important that you know the eligibility of every lender, and then go for the loan whose eligibility criteria you meet. If you apply for a business loan without knowing the business loan eligibility criteria, your application might also get rejected, which will also affect your CIBIL score.
Here are the eligibility criteria the lenders ask for taking a small loan for your business:
1. What is the business turnover?
Turnover refers to how quickly a business can collect cash. Every lender checks the turnover of the business. Most of the lenders consider the business turnover between Rs. 15 lakhs to Rs. 1 crore to be eligible for a small business loan.
2. What is the age of the applicant?
Age of the applicant is another criteria. Lenders consider the application of the borrowers who are a minimum of 21 years in age and a maximum of 65 years in age.
3. For how long the business has been active?
Number of years the business has been active is also important and is a major criterion for a small business loan. But the number of years depends from lender to lender. Many consider a minimum of 3 years to be eligible, but a few also offer loans for businesses as old as a year.
4. How much is the CIBIL score?
CIBIL score is thoroughly checked by every lender before granting the business loan. Most of the lenders consider CIBIL but some also have their own credit score evaluation system.
CIBIL score or credit score is checked to evaluate how financially stable the business is, answers to questions like will the applicant be able to repay the business loan amount? How many loans were taken in the past? Were they all repaid? basically, the whole credit history is considered by the lenders.
Documents required for a small loan:
- PAN Card of the proprietor
- Aadhaar Card of the proprietor
- Bank generated account statements (in pdf format) for the last 12 Months
- Income tax returns for the previous 2 years
- Latest Balance Sheet & P&L (provisional)
- Latest Audited Balance Sheet & P&L
- Shop Establishment License or Gumasta
- GST Registration Receipt
- GST Receipts/Challans
Make sure you do not miss on providing any information to the lender and avoid defaulting on a small business loan so that you do not face any complications in the future while taking a loan.
Here are a few things that you should keep in mind:
1. Take a loan only to meet the important needs of the business
Take a loan only when it is really and urgently required for your business. Always keep in mind the loan repayment amount, the loan tenure, and the interest rate before going for a business loan.
2. Analyzing the cash flow is important before taking the loan
Analyze the cash flow of the business, check whether there are sufficient funds with you, so that you are in the position to pay the monthly loan installment.
3. Discuss all the terms and conditions of the loan with the lender
If you have any doubt regarding the loan conditions or if you are not finding yourself to be in a position to make the loan payment, make sure you communicate it to the lender well in advance. If the lender is convinced with your points and understand that your business is going through a temporary cash-flow situation, it will open a window for you to discuss on the various options, and come to a final solution which is feasible for both the parties.
If you want to grow your business and you are not sure how a small business loan can help your business at this stage, read on the following to know how a small loan can really help.
How a small loan can really help in business growth?
1. Hiring more experienced employees
More experienced employees are needed during business expansion so that provide their expertise wherever required. But more capital might be required for hiring new people. In this case, a small business can help a lot.
2. For updating inventory
The inventory needs to be in place in business, especially at the time of a bigger order. Updating inventory could also involve updating machinery or equipment for faster and better production. This will also require investment. The best option at this time would be to go for a machinery loan.
3. To help maintain a steady cash flow
During the stage of expansion, the owner would require to make payments to the vendors on time. Receivables of clients may get delayed which will lead to a credit problem. A business loan can help in maintaining healthy cash flow in the business.
4. For various marketing activities
Some marketing activities also require a proper team and a budget. A small business loan can help provide the capital needed for marketing activities.
Before going for any small loan for the business, it is important that you review all of the financials carefully, and choose a lender after comparing the various loans and lenders available in the market.
Do you require a small business loan for your business? Contact Gromor Finance for an unsecured loan with attractive interest rates!