For every small business owner, getting a business loan to meet the various needs of the business becomes necessary many times. It may be required to buy new equipment or machinery, to hire more personnel, to upgrade the technology, to expand the business, for marketing and advertising activities, etc.
For whichever reason a loan is needed, the business owner should first conduct research on the various lenders and their preferences and then decide.
Getting a business loan nowadays is not that difficult since there are many options that are available for one to choose from. The traditional method of taking a loan that is through banks still remains and new players in the market including NBFCs are gaining pace.
A traditional bank loan has a tedious process, requires a huge list of documents, involves security, and the loan amount disbursal takes a long time.
Whereas other financial institutions like NBFCs have made this process much easier for small business owners. They require minimal documentation, they have an online application process, many NBFCs even give loans at affordable interest rates, and have a quick rate if loan disbursal.
Before you go ahead with the decision of applying for a loan, consider a few things to avoid rejection:
1. Make sure that your credit report does not show any default on your part
Credit report or CIBIL report is a very important document which is needed when applying for a loan. Eeyrlende thoroughly checks the credit report of the applicant to know about the loans taken in the past, the repayments done, if the borrower has defaulted in the past, the number of credits taken in the past, and the number of debts. If your credit report shows some problems, the lender can reject your loan application.
2. Specify the main objective behind taking a loan and include the correct information
Specifying the objective behind taking the loan and the loan amount needed is very critical. If the lender is not convinced of the reason then loan approval becomes difficult. Also, all of the information included about the business should be clear and correct, any false information found can be risky for the borrower.
3. Mention the details of the business in brief
Details of your business should include the name, type of business, business premises, the goal of the business, establishment details of the business, details of the owner, etc.
4. Remember that your company should be at least a year old
Ideally, when applying for a loan the business should be active since at least a year or three years. Any new business or a startup is a risk for the lender since there is no financial strength at the start of a business, and it is also difficult to pay back to the lender.
5. Be careful before being a loan guarantor for somebody
If you are thinking of being a loan guarantor for somebody, then take this decision only after considering the fact that if that person defaults on the loan, it might have an impact on your credit report as well, which is not healthy for your business.
Whether you choose a bank or an NBFC, there is an eligibility criterion which has to be met in order to get a loan.
Basic eligibility criteria to get a business loan:
- Age of the applicant should be a minimum of 21 years and a maximum of 65 years.
- The turnover of the business should be between Rs. 15 lakh to Rs. 1 crore.
- The business should have been active since at least 3 years, in some cases even a year is considered by the lenders.
- A credit score of minimum 750 is considered good by the lenders. But the credit score which is considered to take the loan depends from lender-to-lender. But in general, higher the CIBIL score, higher the chances of loan approval.
- Along with this, documents related to proof of identity, proof of address, business plan, and other financial documents as mentioned by the lender are required to be eligible.
Few other eligibility criteria required to take a loan from an NBFC:
- Income tax returns of the previous year should be more than Rs. 2.5 lakhs.
- Residence of the owner should not be the place of business operations.
- The small business owner should be the owner of the place from which the business functions.
Some of the documents required for the loan include the PAN card, Aadhaar card, Balance sheet, and P&L, GST receipts, licenses obtained by the business, Proof of business registration, proof of rent (if the premises is on rent), etc.
Apart from this, another important document that should be included when you apply for a loan is the business plan. A perfect business plan puts a good impression on the lender.
Here are a few things that should be included in a business plan:
- Information related to the team like founders of the small business, the hierarchy, team size, etc. should be covered.
- Mentioning the clear objectives of the business is another important thing to be included. What the business wishes to achieve in the next 2-3 years should also be mentioned. Achievements of the business in the past can also be included. Information about the products and services the business offers has to be included.
- Specifying the market share of the business, along with the revenue, and growth potential will also make your plan more concrete.
- A point related to the financial performance of your business with some financial projections for the future can also be added.
- Lastly, some information about your competitors or the largest players in the market, how your business is different than them, how the products and services you offer are different, how you dealt with them in the past, how you plan to deal with them in the future. etc should be included. A SWOT analysis which tells about the strengths, weaknesses, threats, and opportunities of your business and competitors can also be included in this section.
After you have everything ready, the next thing to do is apply for the loan, in case of a bank, you might be required to write a loan request letter. But in case of an NBFC, you will just have to visit the site, fill the application, upload the documents, and then wait for loan approval.
Thinking of taking a loan for your business, contact Gromor Finance will help you get a loan at affordable interest rates and quick rate of disbursal!