Get Your First Business Loan in 5 Easy Steps
To run a business efficiently, it is crucial to have sufficient funds at all times, more so if you’re planning to build, grow, expand, or diversify the business. Of course, life isn’t ideal, and hence there may be times when your business doesn’t have the requisite cash flows to meet your current or upcoming financial obligations. This is where a Business Loan comes in handy.
To get a Business Loan, you need ample planning, detailed documentation, and, more importantly, a close look at your enterprise to accurately determine its loan needs, as well as its eligibility.
A Business Loan warrants more than just a desire for additional funds and a duly filled application form. But don’t you worry. If this is your first time Getting a Business Loan, we have consolidated a list of 5 simple steps to procure the loan in the swiftest manner possible.
Step 1- Determine the Need for a Business Loan
When you approach a lender for a loan, the first question they’ll put forth is – “Why do you need a Business Loan?” To give them an answer that’s compelling enough, you first need to ask yourself the same question.
More often than not, businesses need additional money to fund one or more of the below-mentioned objectives:
- Kick-starting a commercial idea
- Managing working capital needs
- Covering cash flow gaps
- Growing the venture
- Emergency spending
- Financing an equipment purchase
- Refinancing an existing debt
- Purchasing fixed assets
- Purchasing inventory
- Investing in a newfound opportunity/project
Consider this list and see if your purpose for getting the loan is listed here, or if you have a specific reason for borrowing the amount.
Once you have figured out the need for the loan, the next step is to reckon the amount you need.
Step 2 – Calculate the Loan Amount You Need
When you zero-in on the purpose of the loan, you will almost immediately know a ballpark figure for the loan amount you need. Usually, knowing the required loan amount is not a problem. The issue lies in judging the affordability of the loan for your business. After all, taking too much debt, that also, right at the first go, can do more harm than good to your business. On the other hand, taking a loan so small that it doesn’t help solve the purpose may lead to missed opportunities or worse, push you into losses.
To avoid this, you must use a Business Loan EMI Calculator. Once you put in the required loan amount, and the approximate tenure over which you’d want to repay the loan, the calculator will help you arrive at your expected EMI. Of course, for that to happen, you will require to key in the anticipated interest rate.
Based on the resultant EMI, and whether you will or won’t be comfortable paying it, you can lay around with the Loan Amount and Tenure, to arrive at a figure that you’re sure you will be able to shell out month after month, for the entire tenure. While doing this, make sure that you’re not pledging your entire revenue towards the EMI. You must set aside your working capital, your overheads, as well as a small percentage of your revenues for any unforeseen contingencies first, and then pay your EMI.
Step 3 – Determine Your Business Loan Eligibility
To get a Business Loan that you desire, you will be required to meet the eligibility criteria set by your chosen lender. While these criteria often differ from one lender to another, three aspects remain more or less the same. These are:
Age of the Business
Most lenders want to reduce their risk proposition while offering a Business Loan, which is why they are more inclined to offer loans to businesses that have been in existence for at least 2 years. Of course, some lenders readily offer loans to new businesses, albeit they charge a higher interest rate
Most lenders will gauge the ideal loan amount for your business on the basis of your annual revenue, and will only offer a small chunk of your revenue as the loan amount. This assures lenders that you will be able to repay the amount. However, this is the case with an unsecured Business Loan.
If you’re taking a secured loan, your loan amount may range anywhere between 60 to 80% of the value of the asset you pledge as collateral.
Personal Credit Score
In order to procure a Business Loan on favourable terms, and in a hassle-free manner, your credit score must be as high as possible, preferably 750 or above.
Before you apply for a loan, make sure you cross-check the Business Loan eligibility criteria laid down by the chosen lender and fulfill the same.
Step 4 – Prepare Your Business Loan Documents
Before you finally approach a bank or an NBFC with your Business Loan application, make sure you have the following documents handy, and ready to be submitted.
- Proof of Identity
- Proof of Residence
- Proof of Age
- Proof of Identity of Business
- Financial Documents (Copies)
- IT Returns for the past 2 years
- Bank Statements for the past 6 months
- P&L and Balance Sheet for the past 2 years (Audited by a CA)
In some cases, you may also be required to furnish additional documents such as:
- Copies of the Sales Tax Returns for the past 3 years
- Copy of periodic stock, age-wise book-debt, and creditors-statement for the last three months
Step 5 – Apply For a Business Loan
You are now finally ready to apply for Business Loan. To this end, you should first look at the various Business Loan offers from different banks and NBFCs, and make your choice. There is a wide variety of short-term, long-term, secured, and unsecured Business Loans available in the market depending on your needs and preferences.
If shopping around for the loan type that best suits your needs seems cumbersome, you can make use of an online loan aggregator and compare the available options with incredible ease.
Once you zero-in on the loan type and the lender, all you’ll need to do is submit the duly filled loan application, complete with all documents demanded by the lender. If the lender finds everything as it must be, they will approve the application. In this case, you will then receive the loan amount within a few days!
So, wait no more before you give your business the much-needed boost and take it to the heights it deserves.
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