A small business loan can be a savior to every small business owner during the whole business life-cycle when there is a need of funds to buy new machinery, hire more people, for working capital, for inventory, or to expand the business.
A small business loan involves taking a loan to meet business needs. The criteria for a small business loan will differ from lender-to-lender, therefore, it is important to thoroughly know about the eligibility criteria of every lender, and choose the one whose eligibility criteria matches with you.
Since a business loan is taken to meet the urgent needs of a business, knowing about the eligibility criteria will prevent business loan application rejection, which affects one of the most important criterion for granting a loan i.e. CIBIL score.
Financial institutions like banks and NBFCs mostly have the same eligibility criteria for a loan but banks have a huge documentation list that they require for the loan, which is not the case for an NBFC.
Here are the basic eligibility criteria of the lenders, you should know about:
- Business turnover: Business turnover or how quickly a business collects cash is a criterion which every lender considers. The business turnover range can be from Rs. 15 lakhs to Rs. 1 crore to be eligible for a small business loan.
- Age of the applicant: Minimum age of the applicant which is considered is 21 years and the maximum age is 65 years in order to take a small business loan.
- Activity if the business: Minimum number of years the business has been active is 3 years. But it depends from lender-to-lender. A few lenders also consider a year old business to be eligible for a business loan.
- CIBIL score: CIBIL score is an important criterion and is thoroughly checked by every lender before granting a loan. Most of the lenders follow the CIBIL but some also have their own credit evaluation system. CIBIL score/credit score is mainly checked to know about the creditworthiness of the business. Will the business be able to pay the loan amount? The number of loans taken by the borrower in the past, and the repayment history.
Some basic documents required by mostly all lenders:
- PAN Card and Aadhaar card of the proprietor
- Bank statements of all accounts for the last 12 Months (in pdf format)
- Income tax returns for the previous 2 years
- Latest Balance Sheet & P&L (provisional and audited)
- Shop Establishment License or Gumasta
- GST Registration Receipt
- GST Receipt/Challan
There are some things you should do before taking a loan for your business:
Be clear of the objective you need the loan for
Decide to take a loan only when it is really required and will help your business. Along with this, also keep in mind the loan repayment, and the interest rate charged for the loan.
Analyze the cash flow thoroughly
Analyzing cash flow is also important. Checking whether there are sufficient funds with you or how much funds do you really need, and will you be able to make the payment of the monthly loan installments.
Discuss all the loan terms and conditions with the lender
Any doubts regarding the terms and conditions of the loan should be cleared with the lender at the initial stages. For example, if you are not in a position to make the loan payment as per what the lender has said, then communicate this to the lender. If the lender understands your points, you can also discuss various options and come to an agreement.
While the traditional path of taking a small business loan from a bank is a good option, it might not always be possible to give security and wait for the loan amount to get disbursed. In such a case, an online loan from an NBFC is a better option due to the flexibility one gets to apply for the loan online, upload the documents, and the loan disbursal is also much quicker.
But before you apply for an online loan, here are some things you should remember:
1. Know what your business needs
Before applying for a loan, it is necessary to evaluate the business requirements. Whether you need a loan to buy a new piece of machinery or equipment, or you need to open a new office or shop at a different location, to meet the working capital needs, etc.. You should know why you want to take this step and should be able to properly justify it.
2. Know about your credit status
A survey to inquire about your credit score is carried out by almost every lender in the market. Your credits core gives information about your credit history, repayments in the past or if you have defaulted in the past, and your credit card activity.
Therefore, as a small business owner, you should be aware of the payment history, amounts owed, types of credit in use, etc.
3. Do research on the eligibility criteria of lenders
Different institutions have different eligibility criteria for granting a loan. It is, therefore, advisable to carry out research about various institutions, know which industry each lender prefers, if they want security for the loan, etc. Knowing about the lender can increase chances of loan approval, and chances of any rejection.
If you want to apply for a loan from a bank, you will have to write a request letter to the bank manager, and fill the form with the documents.
If you want to apply for a loan from an NBFC, you will have to visit the site, fill the application, upload the documents, and wait for the approval. If everything is okay and your loan is approved, you can expect the loan amount within just a few days.
Do you need an unsecured loan for your business? Gromor Finance offers loans at affordable interest rates to small business owners. Visit the website to know more!