Cash flow struggles are real, even for booming businesses. Unpredictable income can throw a wrench in the works, making it tough to cover expenses like payroll or supplies. To keep the wheels turning, they might need a cash injection to cover payroll, materials, or even upgrades.
That’s where a business loan swoops in to save the day. It can be a lifesaver, preventing businesses from hitting the brakes or even shutting down. Even though getting a business loan might seem easy, many qualified applicants get tripped up at the approval hurdle. Here’s a checklist to help you speed through your business loan application.
Understanding Your Financial Situation Before Taking a Small Business Loan
Before diving into the loan pool, take a deep breath and assess your financial fitness. It’s like understanding your strengths and weaknesses before a big competition – crucial for success! Here’s why:
- A good credit score is like a glowing recommendation letter for lenders. It builds initial trust and increases your chances of loan approval.
- The higher your credit score, the better the small business loan terms you can overcome challenges. Think lower interest rates and sweeter repayment options!
How to Improve Your Credit Score?
As an entrepreneur, you can practice the following:
– Pay your bills on time.
– Reduce your credit utilisation to a large extent.
– Avoid hard inquiries if need be. Please note that hard enquiries can temporarily reduce your credit scores.
– Monitor your credit report closely.
Approval of Documents Required for Business Loan
Applying for a feasible business loan is a lengthy process. Documentation remains to be the key towards sustenance, as lenders’ would like to go through each and every piece of document related to business performance. Once your documents remain valid, lenders will sanction the loan amount you are eligible for.
Documents required to process business loans for entrepreneurs include:
- Personal identification details
- Business registration number
- Business plan in detail
- Financial statements for the last three financial year/s
- Tax returns till the last three years
- Bank statements for at least the current financial year
Seek Professional Guidance
In case you are a qualified entrepreneur, financial consultants suggest that you seek professional guidance before going for a collateral-free business loan application. Qualified professionals can help you make proper decisions while enabling you to mitigate the associated financial risks.
Review your budget before applying for a business loan
You should check your financial budget before you apply for a business loan. Lenders’ would like to know more about your financial capability before sanctioning a business loan. Loan applications should take into consideration:
- Your monthly income expenses and
- A close estimate of your cash flow and profit margin.
- Current debt obligations
- Financial capability
- Liquidity ratio
Besides the above, financial experts explain that entrepreneurs should have a clear-cut business goal in relation to the loan utility factor. Application of business loans should also take into consideration contingencies, as explained by qualified chartered accountants. However, applications for business loans should be processed in accordance to the eligibility criterion as defined. It is important to note that, laid down norms can vary from one financial institution to the another.
Conclusion
You should be well-prepared and organised before applying for a business loan. You should know your financial position, your business goals, and your loan choices. The best way to apply for a business loan is to go via an NBFC. NBFCs can offer you a flexible business loan plan with suitable repayment terms. Offering unsecured loans, NBFCs can help you with all odds to procure a business loan.
