Here’s Your Mini-Guide to Business Loans
Today in the world of ever-increasing competition, as well as the race to kick-start the next big start-up, it is becoming increasingly essential for businesses to have excess funds on their disposal. This is especially true for small and medium enterprises, as they often need modest sums of money either to meet their operational expenses or to fund the acquisition of new assets. Either way, the one-stop solution to their search for money comes in the form of Business Loans.
While there are numerous types of credit, when it comes to procuring excess funds to propagate a business such as peer-to-peer lending, Credit Cards for business and even Personal Loans; a vast majority of enterprises depend on the considerably affordable Unsecured Business Loans for their needs.
Unsecured Business Loan – Definition
Primarily, an unsecured Business Loan is a debt offered by a financial institution, to a self-employed professional or a business owner, which is required to be repaid with interest, in the form of equated monthly instalments (EMIs), in a pre-determined span of time. This credit is offered on the basis of the repayment history and the credit score of the borrower and hence doesn’t require the borrower to offer any collateral against the loan amount. However, lenders do conduct a quick check of the borrowers’ sources of income, to ensure their ability to repay the amount.
Application Process for Business Loans
While every bank or financial institution has a distinct application process, more often than not you will need a written application for the loan stating the amount that you are willing to borrow and the reason for the same. Besides, you will need to submit a few documents, especially if you do not have an existing account in the bank that you are applying to.
Here is the list of documents that you may be asked for when you Apply for a Business Loan. It is, therefore, recommended that you keep them handy.
You must offer at least one of the acceptable government-issued photo identity proofs from Passport, Pan Card, Voter’s ID Card or Driving License.
Next on the list is a proof of residence, wherein you will be expected to offer your Passport, Ration Card or Utility Bill (preferably landline or electricity bill).
Then, you may be asked to furnish a proof of ownership of residence, which can be done by submitting Property Documents, Maintenance Bill or Electricity Bill.
Next comes the proof of office address, which can be furnished with the help of Property Documents (if any), Maintenance Bill (if any) or Utility Bill. The same documents can also be used to furnish the proof of ownership or part ownership of office.
To obtain a Business Loan, you will be required to prove the existence of your business. This can be done by submitting one or more of the documents from, Saral Form copies for the past three years, Shop Establishment Certificate (copy), Tax Registration Copy or Company Registration License.
To establish the proof of your income, you should submit your Income Tax Returns Statement, as well as your Bank Statements for the past two years (or as directed by your lender). You may also be required to submit your Balance Sheet, Profit and Loss Statement as well as Audit Report.
If you are a self-employed professional, expect the lender to demand your professional degree certificate.
In addition to the above, you will need 1 or 2 passport-sized coloured photographs, as well as proof of investments, if any. Then again, if you are already servicing a loan, you must furnish a copy of the sanction letter regarding the same.
Since a vast majority of lenders now accept online applications, the entire process is highly automated which not only makes the loan approval swift but also ensures that the disbursed amount get reflected in your account within a few days. While these prove to be exceedingly advantageous, one limitation to this process is the fact that you have little or no power to instigate the lender’s decision in your favour, even when you have some apt explanations for any drawbacks in your application or repayment history.
Things You Must Know Before You Apply for a Business Loan
As is with any financial decision, your call to procure a Business Loan must also be well informed, and well thought out, to this end, it is essential that you know and understand the following aspects.
Make sure you apply for a Business Loan, only when you absolutely need it, and not merely because it is readily available. After all, it is a credit, and it will need to be repaid with interest.
Once you make up your mind about the loan, zero-in on an appropriate loan amount. Make sure that the amount is in line with your income as well as fixed expenses, and that the EMI would not put an excessive strain on your financial situation.
Make sure you compare the rate of interest as well as other additional charges such as processing fee, prepayment fee, and so on before finalising on a lender.
It goes without saying that in order to get a swift loan approval your business credit history should be commendable. Here, however, you must also remember, that the lender may and possibly will check your personal credit history as well. Hence, make sure your credit scores, both commercial as well as personal are in good shape.
If in case, you wish to pay off the loan sooner than your tenure, it is best to negotiate the prepayment terms before signing the loan agreement. This will help you enjoy a smaller prepayment penalty and would thus let you benefit primarily from the early payment.
We hope that you now have all the information you could possibly need before you apply for a Business Loan and that this guide serves as your go-to reference when you wish to seek a credit for your business needs.
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