With the Indian government promoting entrepreneurship through such initiatives as Start-up India and tax breaks, starting a business of your own no longer seems far-fetched. But very often, we are not able to convert our ambition into reality due to lack of monetary support. However, don’t let money be a deterrent, especially when business loans are easy to get. But, before you start applying, know the top 5 myths associated with business lending.
1. I won’t get loan because my requirement is too small
Just because you are applying for business loans doesn’t mean that the loan amount has to be in crores! While many businesses do require staggering amount of loans, it doesn’t imply small loans are never granted. Nowadays, government lays equal emphasis on MSME (Micro Small and Medium Enterprise) for which small loan amounts too are eligible for grant.
2. Loan approval takes a lifetime
Loan approval does not a take a lot of time, provided your documents are in place. Before you start applying, ensure that all your documents are ready — business plan, roadmap for utilization of loan amount, income statements, among others. All you have to do is present accurate and genuine credentials and roadmap for your business growth. Once the bank verifies your documents and trusts your ability to repay the loan, your application will be approved.
3. A good credit score is all it takes for the loan grant
This is a long-gone conventional method to declare you are eligible for loan.
A good credit score is without doubts a strong influencer for the loan grant, but today a financial institution gives equal weightage to your business history in terms of revenue, stability and financial standing so far. In case you want to borrow for your new business, your long-term vision and growth plan will be closely reviewed. However, do keep your credit score clean and high with timely credit card and debt repayments.
4. You can’t get a loan if a traditional bank declines it
If a bank declines your application, you can approach NBFCs (non-banking financial companies). As a matter of fact, there is no major difference between seeking loan from a bank and an NBFC. Their ultimate requirement is your capability of loan repayment and the strength of your business proposition. By and large both of these lenders will have similar interest rates with their willingness to lend up to 80% of the total project value. What varies is the process, the time taken in the grant of loan, and other additional fees/charges. So do your research well and you can strike a good deal.
5. New businesses cannot apply for loans
Every day we hear about new start-ups coming up in the business marketplace. While many of them flourish with great investors venturing in, many struggle to even start because they lack capital investment. But that doesn’t mean new businesses can’t get loans from banking institutions. Although it may seem easier to get loans for well established businesses, but these days the world of loans has evolved. Banking institutions (both PSUs and Private Banks) have dedicated start-up loan schemes to provide loans to new and promising businesses. New businesses can certainly apply for loans that will be entertained.
6. Loan against property is the only option
Today, new businesses can seek loan without pledging their property to their lenders. The Ministry of Finance has come up with an initiative called collateral-free business loans for start-ups. Prominent banks such as ICICI and Bank of Baroda also offer these types of loans to new businesses. However, there are certain criteria that a startup must fulfill in order to seek a collateral-free loan that can be checked with the lender.
Starting a business today is much easier than it was in the older times. Don’t leave any stone unturned if you are seeking for a business loan. This is a world of possibilities.