A small business owner might require a small business loan for many reasons such as hiring new talent, expanding business form one location to another, to buy machinery, for working capital, etc. When a business owner approaches any loan company, the main objective behind the loan should be clearly specified. The lender will only grant a loan when satisfied by the reason for the loan along with other important aspects.
In India, a few of the options available to take a business loan are banks, NBFCs, government schemes, etc. The basic requirements of every lender remain the same i.e. to evaluate the financial stability of the business.
A loan application in general should include the requirements of the business with reason, and the type of your business, along with the financials.
Options available to take a business loan:
Banks mostly provide secured loans for which they ask for some security. The interest rate for such loans depend on the credit score and credit history of the borrower along with the eligibility criteria of the lender. This is the most common option for loans.
The asset given as security is only released when the lender receives the entire loan amount including the interest.
And if the borrower fails to pay for the loan, the lender has full right to take ownership of the asset, and will retain the losses by selling the asset.
This is a good option if you want to avoid personal risk in the investment or if you want a loan at lower interest rates.
An NBFC or a Non-Banking Financial Company is another option to take a small business loan. The application process for NBFCs is much simpler and do not have a loan process like banks. Th rules and regulations are also less as compared to banks, and there is no security involved either.
The process involves meeting the eligibility criteria of the lender, filling an online application along with uploading the documents.
3. Government schemes
Some of the common and good government schemes for taking a business loan include Mudra Yojana, and Stand-Up scheme.
Mudra Yojana involves loan amount up to 10 lakhs to only the small and micro enterprises. This loan is provided by commercial, and co-operative banks.
Mudra Yojana is divided into 3 categories: Shishu, kishore, and Tarun. Shishu covers loans up to INR 50,000, Kishore covers loans above INR 50,000 till up to INR 5,00,000, and Tarun covers loans above INR 5,00,000 till up to INR 10,00,000.
Stand-Up scheme basically provides unsecured loans to women entrepreneurs who belong to the scheduled caste, and scheduled tribe.
Loan amount can range from Rs. 10 lakhs to Rs. 1 crore.
Basic requirements of taking a loan:
- The minimum turnover of the should be between Rs. 15 lakhs to Rs. 1 crore.
- Age of the applicant should be a minimum of 21 and a maximum of 65 years
- Activity of the business should be a minimum of 3 years, but some lenders also consider a business which has been active since only a year.
- Credit score/CIBIL score is another important criterion, by which the lenders check the credit worthiness of the borrower and that whether the loan amount will be received back or not. A good credit score increases the chances of loan request approval.
- Few other criteria include loan amount and purpose, company type, etc.
- Some of the documents asked by the lenders include, PAN card/Aadhaar card, bank statements of the last 12 months in PDF format, ITR of the previous 2 years, Shop establishment license, GST receipts,etc.
There are some things that should be remembered before taking the step of availing a loan:
1. Analyze the business needs thoroughly
Before you apply for a loan it is necessary to evaluate your business requirements. What is really needed for the business, loan for expansion or buying new machinery, etc. Or you require a loan to meet the daily financial requirements of the business. You should be clear why you want to take a loan and should also be able to explain it in properly to the lender.
2. Know what is your credit status
Knowing and updating your credit report from time-to-time is very important. Credit score and history is considered by every lender. This is done to know about the loans taken in the past, timely repayments for the same, any other fraudulent activities by the owner, and also the credit card usage.
Therefore, it becomes necessary to know the payment history, the amounts you owe, and the types of credit in use currently.
Mostly, the lenders consider a credit score between 750-900 to be good, but it depends from lender to lender. Few of the lenders also have their own evaluation system to calculate the credit score.
3. Do a proper research on the lenders available
Conducting a research on the types of lender, the loans they offer, the eligibility fir the same, the interest rte involved, and the other terms and conditions is very important so that you do not face rejection. And this step will also help in increasing the chances of loan approval.
But how should you approach a lender will depend on the type of lender you are thinking of choosing.
If you are applying for a loan from a bank, you will have to write a loan request letter to the bank manager stating your need and the reason for the same.
The letter should include name of the business, structure of your business, description of your business in brief, number of years the business has been operating, number of employees, and the annual revenue for that year.
If you want to go for the online option, here are the steps you should follow:
1. Visit the site of the lender.
2. Fill an application form.
3. Upload the required documents.
4. Wait for loan approval.
5. If and when the loan is approved, the loan amount will be disbursed within a few days.
The last thing is to really decide which loan will be beneficial for your business. A secured one or an unsecured one. Hence, analyzing all the pros and cons of each loan is important and will help you decide on an option which is best for you.
If you are business owner in need of a loan, contact Gromor Finance for a quick loan at attractive interest rates!