Things to Do Before Applying For a Business Loan
A quick and hassle-free Business Loan can be a key to fulfil your dreams and reach new heights of success. Whether you are planning a start-up or are the owner of a new establishment, there are a few must-to-do-things you must know about before applying for a Business Loan.
Although a large number of lenders in the market have devised different Business Loan Schemes to cater to all niches and business types, availing a Business Loan is not always a cakewalk.
For instance, Bajaj Finserv and Fullerton India have attractive Business Loan Schemes with competitive interest rates. Bajaj Finserv offers approval within 24 hours. One can choose a short term, medium term, or a long- term business loan for infrastructure addition, to maintain inventory or increase working capital. These customised loans will help business development.
Fullerton India also provides business loans with various interest rates depending on the loan amount and the line of business. Fullerton India does not insist on collateral security. The loan process and documentation is straightforward. You can conveniently apply online for Bajaj Finserv Business loan or Fullerton India Business loan to get the best deal.
But for many first time applicants, it may be a hard task, requiring a lot of convincing from the applicant’s end to prove the business acumen, product knowledge and vision for the business.
So, let’s outline and simplify essential steps to apply for a Business Loan below:
Drawing a Business Plan Charter
Business Plan should explain the nature of business one is running, the products and services offered, while highlighting an insight to the past performance. Draw out the action plan for the next few years and give details of projected revenue and expenses, market analysis and also give a list of competitors in the business. How one intends to grow the company also should be explained.
The lender needs to be convinced about one’s knowledge and skills required for the prosperity of the business. Business Plan should also cover the point explaining how one thinks he or she can prove better than his or her competitor in the business and why he or she is the best suited for the business. This will form the first impression of your business to the lender. If this goes fine, first step of your application is well accomplished.
Presenting Financial Statements
Preparing financial statements covering the past performance and future projections is essential to give an idea to the lender about the business goals set for oneself. The future projections should be made taking into account the seasonal changes in one’s business and how the money borrowed will be invested in the business. If any new work has been taken up then producing the confirmed work order will quantify one’s projections. Cash flow will give an account of the income and expenditure and the surplus funds available for servicing the loan.
The financial statement drawn should convince the lenders that the funds will be utilised to grow the business and will give them an idea as to whether one will be able to repay the loan availed. If it is a Start-Up for which the Business Loan is being availed, then projections for the next three years should be drawn. The Business Plan should have convinced the lender about the knowledge and skill one has about the line of business chosen. The marketing strategy planned for the growth of the business and the progress till date also should be explained.
Requirement of the Loan Amount
The Business Loan may be partly used for investing in fixed assets and partly as working capital to fund the operational costs. With the business plan and financial statements in place, one will be able to assess the amount required for further progress of the business. One needs to decide on the equipment to be purchased and also arrive at the probable income generation with the new investment. Research has to be made with various vendors for the equipment to choose the best deal. All the supporting documents revealing the research made should be available to produce to the bank to convince them that one is really serious about the business expansion. Also, the projections should reveal the additional income generated with the new investment.
There are some loan schemes which insist on collateral security. If one is opting for such a loan, then you should know about the value of collateral security required. One should be sure about the worth of the tangible security so as to promise the banker about the extent of loan security you can offer.
Personal Credit History
One should be aware of one’s personal credit history before Applying for a Business Loan. It is a wrong notion that Business Loans do not require a credit history. If it is a proprietorship concern, the credit history of the proprietor will be scrutinised; if a partnership firm, then the credit history of the partners also plays an important role; if a Company, then the credit history of Directors is essential.
One should check the credit score of all the persons involved in the business. If the credit score is good chances of loan approval are high. In case of low score of any of the stakeholders, check as to why the credit score has come down and find ways to set it right before approaching the bank for the Business Loan.
Banks ask for personal credit score to understand how responsible all the partners in managing funds are. Banks will also ask for individual IT returns for one year besides the bank statement.
Understand the cost of the loan before applying for one
There are various offers from different financial institutions for Business Loans. Do research of all the offers and understand the tenure of the loan, interest rates and other charges applied for a particular loan before deciding on the best one. One should consolidate all the charges applied to the loan to arrive at the overall cost of the loan.
All the information regarding the monthly commitment towards the loan, the additional charges incurred should be reflected in the financial statement submitted to the Bank. Do not forget to read the terms and conditions for Business Loans before deciding which is the best lender for applying for the business loan.
If you have a good credit history and you approach the bank with all the required details and a business plan, chances of qualifying for the loan are much brighter.
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