These days there are several types of business loans and lending options. Therefore, small business owners can easily avail these facilities in comparison to others. Despite having myriad options, becoming eligible for a business loan can be a bit challenging. So prior to taking a final call regarding a business loan, it is advisable to gauge your eligibility to ensure that you are not walking down the wrong path. To secure cent percent loan approval necessary documents together with proper timing and a good CIBIL are required.
Answer properly on loan application form
Business loan application forms differ from one lender to another, however they have similar questions for which you should have appropriate answers. If the answer is found unsatisfactory then it can lead to the rejection of your loan application. The information normally sought by lenders are:
- Reason for availing the loan
- The way you are going to utilize the loan amount, in case it is permitted
- The net revenue of your business
- The inventories/machinery you are supposed to buy, and your suppliers
- Your clientele
- Any other business debt incurred by you
- Staff information
- Personal history
Sound business Planning
Lenders need a superior and successful strategy to be presented along with the loan application. The strategy has to have anticipated budget reports such as advantage and disadvantage, revenue, and fiscal record. The lenders will also require a credit report from every three important customer CIBIL score offices prior to accepting your loan application. Any negativity on your credit report can seriously affect the prospect of availing loan. So, prior to applying for a loan, just examine your CIBIL score yourself and rectify the problems (if any) before going ahead with the application.
Lucidity of cash inflow
A business with poor cash flow is normally construed as a risky proposition by the banks. This is due to the fact that the bank would think the business would give more priority to your professional expenses than repaying the credit. They would also evaluate bank statements of the business and personal accounts to understand your monetary position thoroughly.
It is possible to better your cash flow (if it is on the lower side) by performing a cash flow evaluation of your business, devising goals, and drawing a clear cut payment plan for your business.
Offering guarantee against loan
In order to be in the safe zone, banks will seek a collateral against money being lent. This is a good option to reduce risk factor. The collateral being offered has to a perfect cover for the money borrowed so as to convince them that their money won’t sink.
The collateral could be anything from a real estate property to expensive equipment or machinery related to your business.
Furnish right documents
You are required to give a few documents to showcase the strength of your business and your ability to pay back the loan. Documents to be provided again varies from lender to lender. The documents needed comprise certain legal and personal documents.
The legal documents needed are:
- Business licenses and registrations critical to operating business
- Articles of Incorporation
- Copies of contracts entered with third parties
- Franchise license/ agreement
- Commercial Leases
- Documents from the local body confirming the permit (in case of industry)
- The application forms can be perfect to state your projected financial statements
- Bank Statements
- Balance Sheet
- Income Statement
- Cash Flow
- Last year ITR documents
Compare your lending alternatives
Upon convincing yourself to go for a business loan, you are required to perform in depth research regarding the borrowing alternatives before you. There are nationalised banks to NBFCs and DSAs for the purpose of business loans. To take the first step, prepare a list of banks and lending institutions giving the type of loans you require. Then juxtapose these options with factors such as loan amount given, interest rate, flexible principle for approval and easy and convenient terms & conditions. In case you are still in a dilemma take the help of an expert.