The entrepreneurs nowadays have option to choose from a wide range of business loan products. Likewise, they can avail credit from a large number of lending institutions. Hence, it becomes essential for business owners to spend some time in comparing various business loan products to avail credit on more favourable terms. However, it is also important for the borrowers to understand the important steps to apply for business loan and getting the business loan approved.
Understanding 7 Major Steps to Apply for Business Loan
1) Decide the Right Business Loan Product
Each entrepreneur has option to choose from a wide range of business loan products. Some of these loan products are unsecured or collateral-free, while others require the borrowers to use assets as collateral. Likewise, some loans require borrowers to submit a variety of documentation, whereas others can be availed online. Also, the business loans differ from each other in terms of loan amount, eligibility criteria, rate of interest, and repayment tenure. Hence, the entrepreneurs must spend some time in comparing various business loan products.
2) Compare Various Lending Institutions
In India, an entrepreneur can avail credit from both banks and non-banking financial companies (NBFCs). Normally, banks provide credit at lower rate of interest than NBFCs. But NBFCs leverage latest financial technologies to accelerate loan disbursement. Many NBFCs even provide credit to entrepreneurs based on real-time financial data like monthly debit and credit card sales. They allow entrepreneurs to apply for the business loans online through their websites. That is why; it becomes essential for business owners to compare the lending institutions based on information collected from varying sources.
3) Understand the Business Loan Application Process
Many lending institutions nowadays allow borrowers to apply for business loans online. The borrower can apply for the business loan product through the lending institution’s website by following some simple steps. At the same time, many lending institutions require borrowers to apply for the business loan by submitting financial statements, business plan, financial projection, and tax returns. No entrepreneur can apply for a business loan accurately without understanding the exact process of applying for the specific business loan product.
4) Know Eligibility Criteria
Both banks and NBFCs require borrowers to meet business loan eligibility criteria for the specific business loan product. For instance, the lending institutions require business owners to have good personal credit score and businesses to have clean credit history. Likewise, they consider the business’s annual turnover and revenue, cash flow position, and financial records while processing the business loan application. In addition to deciding the right business loan option, it is also important for the borrower to understand the eligibility criteria for the specific business loan products clearly.
5) Prepare a Strong Business Plan
Most lending institutions require borrowers to submit a business plan or financial plan while applying for unsecured business loans. Before applying for an unsecured business loan, the entrepreneurs must prepare an elaborate and strong business plan. The business plan must convey detailed information about the business and the business owner. Also, it must clearly state the business’s long-term and short-term objectives, and the strategy to achieve these goals. The borrower must prepare a proper business plan to increase chances of getting the business loan approved.
6) Accumulate the Required Documentation
The lending institutions require borrowers to submit a set of documents while applying for a business loan. While submitting the duly filled in loan application form, the borrowers are required to submit KYC documents, audited financial statements, income tax returns, projected turnover, and latest bank statements. The entrepreneurs must work on the documentation and paperwork before applying for the business loan product. However, the documentation required by individual lending institutions may differ.
7) Follow Simple Best Practices
No entrepreneur can apply for a business loan properly without keeping in mind some simple best practices. For instance, they must submit accurate and up-to-date information while applying for the business loan. Likewise, they also need to submit additional information required by the lender to assess his credit history and creditworthiness. At the same time, the borrower must provide the follow up information required by the lending institution immediately to reduce loan disbursement time.
On the whole, the entrepreneurs must evaluate various business loan products to avail credit on favourable terms. But they must remember that the business loans will differ from each other in a number of aspects – loan application process, eligibility criteria, and loan approval process. Hence, the steps to apply for a business loan will change according to specific business loans and individual lending institutions.