What is the Right Way to Apply for a Business Loan?

by MyMoney Mantra FinTech (Financial Technology)

Planning to expand your business? Need funds to buy equipment? Wish to enhance employee strength and infrastructure of your firm? A Business loan is the answer!

There are certain vital factors that a borrower should consider before Applying for Business Loan from lenders in the market.

Banks will approve your application based on the information and supporting documents you furnish. Not presenting the right information and not furnishing important documents can lead to a rejection. Therefore, thorough preparation increases the chances of an approval.

Prepare a Perfect Business Plan

You should create a robust business plan which should contain detailed information about your business. Ensure that your business plan contains the following details:

Description of your company in one page stating when and how you started it, its sustainability in the market, ups and downs faced if any, and how you want to take your business forward
Describe your management, describing a professional biography of the managers in your business and their role in taking your business forward
If you are a service provider, describe all the services you provide. The same applies for products. Include a note about your prospective customers and why they will buy your products or avail your services
Enlist what your marketing strategies are to reach your target audience. If you plan to run advertisements or use online banners to promote your services/products, include this information as well.
Provide accurate financial sales projections and expenses for at least three years. If your business is at least 5 years old, provide projections of the same duration to enhance your credibility.
Describe your business goals and the strategies you propose to implement to achieve your goals.
Add a cover page to your business plan that includes only your company name with complete address and contact information.

Know Your Credit Report

The Credit Information Bureau Limited (CIBIL) sources financial data of individuals from banks and other financial institutions. This data is presented in the form of credit report with a score. CIBIL, which is backed by international credit bureaus like TransUnion International and Dun and Bradstreet, scores its ratings ranging from 300 to 900. There are other credit rating agencies, the scores of which may slightly differ.

Your latest credit score will be based on the calculations of at least six months of your financial data, especially your borrowing, payment, and repayment history. Before applying for a business loan, it is advisable to check your credit score. A bad score may lead to the rejection of your business loan application. Having sound credit history is of vital importance to avail finance from lenders. Lenders review your credit report and check your creditworthiness before sanctioning your loan. If you have defaulted on payments or haven’t made payments pertaining to your credit card or other loans in time, the same will be reflected in your credit report, which may negatively impact your credit score.

The higher your credit score, higher is the chance of an approval. A credit score of 700 or above is commonly considered good and a score of 800 or above excellent. If you have a bad score, it will be wise on your part to first improve your score and then apply to avoid a rejection. For any future transactions, never default on payments. Keep an adequate balance in your bank account for ECS (electronic clearing system) transactions and make all payments on time!

Business Feasibility

Your business should be running for at least three years. Added business experience and market presence is an advantage. While applying for a business loan, you have to furnish a detailed profit and loss projection according to industry standards with proof of business stability for the last three years. Financial documents that are required to be furnished include balance sheet, profit and loss statement of last 2 years, tax audit reports, and related documentation.

Understand Your Options

What types of business loans are offered by different lenders? What are the terms and conditions? How much do you want to borrow? Ask yourself these questions. The answers will further help you apply for a business loan the right way. In general, banks provide the following types of loan to borrowers:

Working Capital Loan: If you need finance to meet daily operating expenses of your business, apply for this loan. Depending on your assets and financial capabilities, this loan can be borrowed as either secured or unsecured.
Term Loan: This loan is suitable for borrowers seeking finance for business expansion or capital infusion in an organization. Banks offer this loan for the acquisition of long-term fixed assets including land or building, machinery and other business needs.
Loan for Women Entrepreneurs: If you are a woman entrepreneur seeking finance for your business, you gain an added advantage of enjoying a plethora of benefits and low rate of interest. If you are a partner in a business firm, you should have at least 50% business ownership to be eligible to apply for this loan.

Business finance can be availed with or without security. The approval and disbursement takes place within a few days if you have furnished all necessary documents and meet the bank’s eligibility criteria. Consider all the aforementioned factors before you apply for a loan.

Also Read : Denied a Business Loan? Here’s What to Do Next

Need customized guidance to your business loan requirements? Visit www.mymoneymantra.com, one-stop leading trusted online financial services marketplace that hosts all leading banks and their business loan products. Using our easy-to-use tools you can check loan eligibility, compare interest rates offered by various banks, and apply right away.

Contact our financial experts toll free at 1800 103 4004 for more information.