How to Get a Small Business Loan in Simple Steps

Running a successful business has many variables. You will always need to keep a tab on the market trend and upgrade your business accordingly. The process is not always easy and would require different resources from time to time, capital or finance being the most important resource. Moving to bigger premises or office, renovating the existing workspace, scaling up operations, acquiring new machinery, repairs to existing machinery, seasonal expansion of work, upgrade to the latest technology, and setting up more branches, are some of the reasons for which you may require additional funds.

You can always fund these requirements by availing a Small Business Loanfrom a bank or other non-banking financial company (NBFC). This article is to help you with the process of applying for such a Small Business Loan. You will learn about the preparation required and the steps involved in availing such a loan. It is obvious that you must know the purpose for which you seek a loan. Depending upon your requirement, you can choose a Small Business Loan that is right for you.

A working capital loan, machinery loan, SME and MSME loans, term loans, invoice factoring, invoice financing, a business line of credit are examples of types of Small Business Loan for you to zero in on.

Once you know your requirement, it is time to start working on availing such a loan. Obtaining a Small Business Loanmight look like a tedious job. But the bottom line is, the information required might be little different from the institution but it all boils down to one thing – they want to understand your ability to repay the debt.

How do you successfully Apply for a Small Business Loan?

The following are the steps involved in applying for a Small Business Loan:

Determine the right time to apply

Before you decide to apply for a loan, you need to determine if it is the right time to do so. That can be decided by evaluating a few factors: 

  1.  Is your credit score where you want it to be?
  2. Is it the right time to put in the extra fund for your business?
  3. Do you have the time and all other resources to start the process?
  4. Are your finances in good shape?

If your answer is yes to all of the above questions, applying for a loan will increase your chances of approval and will also help you get a competitive rate.

Know the loan amount

If you are a small business owner, whether of a start-up firm or an established firm, you need to evaluate and understand the loan amount you will require and how will you be spending the amount? For that, you should draft a good business plan. You should also be able to articulate the business plan clearly. 

Understand your eligibility

A self-employed individual, partnership firm, sole proprietor of a firm, privately limited company doctors and other professionals can apply for a Small Business Loan. To understand your eligibility for a Small Business Loan, there are three important things to consider.

  1. Your credit score
  2. Your time in business
  3. Your revenues

Your credit score will play a major role in dictating your loan eligibility. A credit score over 750 is considered to be a good score and will open many doors for you.

Another important factor is your time in business. If you are a startup company, you may not be eligible for big amounts.  If you have been around for more than 2 years, you will be able to provide enough financial information to prove your eligibility and hence have better options for a loan.

Your revenues will dictate your loan amount too. The lending institutes typically offer a loan as a percentage of your revenues. So, higher the previous revenues higher will be the loan eligibility.

Prepare for a Business Loan search

Look around and shop for your loan. The important factors you should be looking at while approaching a bank or other NBFCs are Loan amount, tenure, interest rate, processing fee, pre-closure charges if any. Evaluate all your options from big commercial banks to small NBFCs for your business loan. It is advisable to avail a loan only after a thorough comparison between many lending institutes like Axis Bank, Bajaj Finserv, RBL bank, Kotak Mahindra Bank, Fullerton India and Capital First Business Loan and avail loans through the website. There are many online EMI calculators available that can determine the monthly instalment that you may require to pay for the desired loan amount, interest rate and tenure.

Assemble the required documentation

Apart from address proof and id proof, you will be required to submit documents related to your business like bank statements, ITR forms, balance sheets, proof of ownership of the business, etc. Prepare a strong loan application that can advocate your loan requirement. 

Choose your disbursal method

Choose a disbursal method that is most appropriate for your small business. Usually, these loans are disbursed in two ways – instalment loan and line of credit loan. In the former loan, your entire loan amount is disbursed to you at once. Whereas, in a line of credit loan, you can withdraw as much money as you want within the maximum credit limit at any time. This is typically done by giving you a Business Credit Card.

Apply for the loan

When all your homework is done, it is time to take the final leap and apply for the loan. You can do the same by visiting the institute you wish to apply for, visit their website and apply for your loan requirement. These customised loans can give your small business the much-anticipated boost and will help your organisation scale new heights.