Easy Steps that will Boost Your Chances of Getting a Business Loan Approved
A business may require funds at any given point of time to meet operation expenses, invest in a new project, or expand its geographical reach. Without the injection of funds, businesses remain stagnant and cannot aim for growth. Additionally, desperate situations such as the pandemic, has compelled businesses to either shut down or opt for a completely different strategy. A complete makeover in the business model also requires huge capital. This is where the need for a business loan emerges.
The lending landscape has also evolved drastically and availing a business loan is no longer a distant dream, unlike earlier times with the help of government initiatives like Emergency Credit Line Guarantee Scheme (ECLGS). However, lack of knowledge about how to approach for a loan and prepare for the same may affect the ability of a business to get approved for a loan. For a smooth approval process, follow these simple steps, which can enhance your chances for getting approved.
- Make a sound business plan
Make a detailed and sound business plan, taking into consideration the market conditions. Create realistic project plans and include a way to mitigate risks in the event of losses. It will help your business earn additional brownie points. A well-explained plan will ensure the lender that your business is worth investing intake the help of a professional such as a financial modeling expert, if you are unsure about how to go through with it.
- Keep a vigilant watch on your credit score
Keep a track of your credit score as it will portray your sound financial health and the ability of your business to repay the loan. Also, even if you manage to bag a loan, a bad credit will automatically make you fall into the category of risky applicants, thereby raising the interest rate. On the other hand, lenders are more than willing to offer credit to a business with good credit score.
- Research about government-aided institutions
If you are a MSME, chances are that you can avail a government-aided loan that is conducive for your business. Some examples of government-aided loans are mentioned below:
- Micro-units Development and Refinance Agency (MUDRA) Loans
Mudra loans primarily finance micro-business units. Under this scheme, three products namely ‘Shishu’, ‘Kishore’ and ‘Tarun’ are offered, under which loans of different amounts are offered to MSMEs based on their growth level.
- MSME Business Loans for Start-Ups in 59 minutes
As the name suggests, this initiative aids businesses in getting an in-principle approval letter for a business loan in 59 minutes, i.e., less than an hour. With some relevant KYC information and documents, the loan is processed at a rapid rate, making is easier for small businesses to avail loans.
In short, invest some time in researching about the different types of loans in the market. It will enable you to avail credit at subsidized rates.
- Clean up your history
A poor credit or negligence in payment will affect your chances of getting approved for a loan. Do your bit for cleaning up your credit history well in advance. Chalk out a plan to ensure that all periodic liabilities are duly met within the given time frame. Any pending litigations should be considered as well as it may impact your chances of getting approved.
- Plan your finances in advance
Nobody understands your business better than you. Every business has a different model for its receivables and payables. Before you apply for a loan, display your prudency by planning your finances beforehand. Based on rough estimates of monthly EMI, you may plan your finances to portray your repayment capacity.
Your negotiation skills will make a big difference in getting approved for a loan. It will ensure that you get a business loan with favorable terms and conditions. There is fierce competition in the market, hence, you have multiple lenders to choose from. However, choosing a credible lender will reflect sound and appropriate business practices.
- Maintain your financial records and keep business-related documents in place
Although this may sound simple, many organizations fail to get approved for a business loan merely because their financial records are not maintained in an organized manner. If you wish to get approved for a loan, it is crucial for borrowers to keep up-to-date financial records, including an account of your fixed assets and other liabilities in place. Keep your KYC and related documents handy to avoid last-minute hassles.
Ensure that your income tax returns are filed in time and pending tax liabilities are met. Also, you should avoid mixing up your financial and business expenses as it makes you appear unprofessional.
When you propose for a business loan, ensure that you have planned well. There is no secret ingredient apart from preparedness, which will assist you in getting approved for the business loan of your choice.
Even after you apply for a loan, disbursal might take time. Offering a collateral as a security, may attract lower interest rate as against an unsecured loan. Businesses should carefully analyze their repayment ability and ensure that the sales proceeds are enough to match with their loan requirements.
Some financial institutions focus on making the procedure quick and hassle-free. However, you should opt for a lender after considering parameters such interest rate, processing fees and other charges, tenure of the loan and market conditions.