How to Qualify for a Business Loan in Easy Steps
Running a business in India and making it a success comes with various challenges, and one of the most significant among them is to secure funding when you need it the most.
Despite the fact that MSMEs contribute generously to India’s national income every year, there is a stark gap in how easily small businesses can access funds.
However, with the introduction of new programs by established lenders, things are slowly changing for the good, and in today’s article, we will speak about exactly that.
If you are a business owner and have been thinking about getting a loan for business for some time now, then this article is for you, as we will be sharing easy steps that you can follow to quickly get approved for a business loan in India.
What Is a Business Loan?
A loan for business is a financial instrument through which you can borrow a certain amount of money to meet business expenses, either in the form of working capital or a credit line to purchase new machinery. These days, most financial institutions offer business loans to registered entities, making the process of accessing funds smooth.
How to Get Approved for a Business Loan?
Now that you understand the meaning of a business loan, mentioned below are some tips and tricks you can follow to get your application quickly approved from a financial institution.
- Maintain a Good Credit Score
When you apply for a business loan as a first-time borrower, one of the key factors the lender will emphasize on is your credit score. Since your business does not have any existing credit history, the lender will take into consideration your personal credit score to assess your repayment ability.
In simple terms, the numerical value that credit rating agencies assign to you after taking into account the below-mentioned factors is called credit score:
- The total amount of credit you have used up in the past
- The total amount of loans you have availed in the past
- The total number of timely repayments you have made
- The total number of payments you have missed
All in all, you need a good credit score to secure a business loan without any hassle. The higher your loan is, the faster will be the approval and the better will be the loan terms.
- Get Your Business Financials Right
The second factor lenders take into consideration is your business’s financial records. Since you are availing the loan to meet your business expenses, lenders use your business’s financial records as a yardstick for understanding your repayment capacity.
While there are a number of factors lenders look into while checking your records, some of the most important ones are:
- Your profit and loss statement
- Your cash reserve
- Statement of monthly expenses
- Your existing debts
Taking all these factors into account, a lender assesses your creditworthiness and accordingly extends a loan for business.
One pro tip to make the process easier is to ensure that you maintain your company’s books and update them regularly right from the very first day, even when you have less to record. The reason behind this is simple; since the lender is trying to understand your creditworthiness, the more data they have, the better they can assess your repayment capacity.
- Apply for a Secured Loan
All lending instruments in India are available in two variants, secured and unsecured, and the same is true for business loans as well. If you are a first-time borrower and neither you nor your business has any existing credit history, a sure-shot way of getting your application approved is by applying for a secured loan.
In case of a secured loan, by pledging an asset or collateral of higher or the same net worth as that of the loan amount, you can make your application convincing. This way, the risk for the lender decreases significantly, and they will be more willing to offer you a lower interest rate as well as a higher loan amount.
- Apply With a Co-Borrower
If your business is established as a partnership or a private limited entity where more than one person is running the business, a great idea to get your application quickly approved is to apply with a co-borrower. As the name suggests, in this process, instead of taking into consideration only your credit score, the lender will assess the credit scores of both the borrowers, thus increasing the chances of approval.
Along with this, when you are applying for a loan for business with a co-borrower, the chances of default on the loan also decrease, thereby increasing the chance of approval.
- Limit Yourself to One Lender
First-time borrowers often make the mistake of applying with multiple lenders at the same time for a business loan. While apparently, this might seem like a harmless process, every time you apply with a new lender, credit rating agencies will treat this as a hard inquiry and lower your credit score by a few points.
One way around this is to log in to a business loan comparison website and check the various offers you are eligible for based on a single request of your credit score. One to two requests a month are generally treated as soft inquiries, however, anything more than this will be treated as a hard inquiry and lead to a decline in your credit score.
Due to advances in technology and the presence of several new lenders in the market, getting a loan for business in India has become easier than ever before. Thus, all you need to do is follow the steps listed above, and you will get the required funds in your account in no time.