A number of studies suggest that entrepreneurs often find it difficult to avail credit on time to start and expand businesses. The traditional banks normally take additional time to disburse small business loans. But there are many NBFCs and fintech companies that disburse business loans within three working days. Both banks and NBFCs even allow entrepreneurs to avail a wide variety of business loans.
But it is also important for entrepreneurs to understand how to get a business loan. In addition to picking the right business lending solution, the entrepreneurs need to understand how to qualify and apply for the business loans. Like other smarter entrepreneurs, you must understand how can you get a business loan following some simple steps. The steps will even help you to improve chances of getting the business loan on time.
How can you get a Business Loan in 7 Simple Steps
Assess Your Financial Needs
You can use the business loan for a number of purposes – fund working capital needs, manage cash flow, purchase inventory, modernize business processes, or hire skilled professionals. Hence, it becomes essential to understand your financial needs precisely and determine the amount of credit you need to meet the financial needs. The assessment of financial needs will help you to compare various types of business loans and avoid incurring additional debt.
Compare Various Types of Business Loans
You have option to choose from a variety of business loan products. Some of these business lending solutions are collateral-free, whereas others require borrowers to pledge asset as collateral. There are also a number of technology-driven business lending solutions that enable business owners to avail credit based on real-time data like monthly turnover and value of unpaid invoices. You must remember that the business loans differ from each other in several aspects – rate of interest, tenure, collateral requirements, eligibility criteria, and terms of lending.
Decide the Right Lending Institution
In India, the lending institutions can be broadly divided into two categories – banks and non-banking financial companies (NBFCs). The traditional banks normally require borrowers to meet strict credit requirements. Also, they take more time to disburse business loans than NBFCs. On the other hand, many NBFCs nowadays leverage financial technologies (fintech) to speed up loan disbursement. You must compare the conventional and non-conventional lending option to speed up loan disbursement and avail credit on favourable terms.
Understand Eligibility Criteria for the Business Loan
As noted earlier, the eligibility criteria differ from one business loan product to another. Most lending institutions consider the borrower’s personal credit score and business’s credit history while processing business loans. Also, some lenders consider additional factors like number of years in business, average monthly turnover, revenue, and profit. They even require the borrower to submit a variety of financial documents along with the loan application. You need to understand the eligibility criteria for each business loan product and check if you qualify for the specific business lending solution.
Gather the Required Documents
The lending institutions assess creditworthiness of the borrower and quantum of credit risk by analyzing a variety of financial statements. However, the nature and extent of documentation vary from one loan product to another. Normally, the lenders will require you to submit important business documents like financial statements, bank statements, tax returns, and business documents. You must understand the document required for a specific business loan product and gather the required documents before applying for credit.
Apply for the Business Loan
Most lending institutions nowadays allow borrowers to apply for business loans online. You can apply for the business loan and upload the required loans through the official website of the bank or NBFC. However, many traditional banks still require the borrower to fill up loan application form and submit the completed form with the relevant documents. You must understand the exact process of applying for a business loan to decide about applying online or offline.
Understand Reasons for Business Loan Rejection
The amount of time required for process a business loan differs from one lending institution to another. There are also a number of reasons your business loan might be rejected. Common reasons are bad credit score, vintage, higher risk associated specific industry and lack of adequate collateral. One must understand and assess the reasons for business loan rejection to get your business loan approved in future.
You can always follow these simple steps to get a business loan on time. The rate of interest, repayment tenure, and terms of lending differ from one business loan product to another. Hence, you have to streamline the process of getting a business loan according to the eligibility criteria for the specific business lending option.