Among the myriad of things a business requires to grow, the most basic necessity is that of money. And if you want to expand your organization you require capital to invest. A fast and easy way to arrange capital for your business is a business loan. Over the years, the central government has brought in many schemes and taken many steps to support small and medium enterprises (SMEs). One of them is to provide such companies a small business loan. There are specific banks which grant such loans to SMEs – they are called Small Finance banks. To avail a Small Business Loan, you will first need to fulfill the following prerequisites:
1. Find a Lender
First and foremost, find a lender which suits your requirements the best. Just like a business has its specialization, each loan lender has their specialization. As aforementioned, there are lenders whose portfolio is just to support small businesses. One of them is Small Industries Development Bank of India (SIDBI). Others are small finance banks such as Au Financiers (India) Ltd., Jaipur, Janalakshmi Financial Services Private Limited, Bengaluru, Capital Local Area Bank Ltd., Jalandhar, Disha Microfin Private Ltd., Ahmedabad and many more. Finalize the lender which is offering you the least interest rate along with the loan amount and tenure which suits you. Payment schedule should also be considered when making decision as paying lower value EMIs early on and then increasing the payouts seem to be the way which many SMEs should go. Payment schedule also describes whether you will be paying interest earlier or principal.
2. Credit History
Your personal credit history and your company’s credit history, both play a pivotal role here, so check them before you apply for a business loan. If you or your company’s credit history has any defaults, then your chances of getting a good deal on your loan will be slim. The personal credit of the business owner matters the most during the initial stages of the company. Since your business doesn’t have financial records in its early years, it’s your personal credit history which will be then evaluated by the lender. To avail a business loan, it is believed that your personal credit score should be equal to 800 or above.
3. Business Plan
You need to have a detailed business plan to get your business loan approved. A business plan tells the lender about your revenue model, organizational structure, board of directors, capital and equity and other important areas which helps them decide whether to approve your loan application or not. The lender will also check the feasibility of your business. They will check the performance of businesses similar to yours. They will also evaluate your business’s mission statement. They will scour your annual sales, employee statistics and the edge your business model have over your competitors’. You need to tell your lender as to how you will utilize the funds you receive as loan from them by clearly outlining your fund utilization schedule. Your business’s revenue plan shows your dealing’s likelihood of future profits and losses.
Also Read: 5 Steps to a Perfectly Written Business Plan
4. Company’s Books
The lender may check your company’s books so keep those in order. Have a comprehensive detail of your organization’s financial audits and address every financial irregularity in the documents attached with your loan file. The lender will check the cash inflow and outflow of your organization, your business’s turn-over and your company’s projections too. Any business which has been in operation for a no. of years has a record of its financial dealings, TIN No., PAN No., GST No. and other tax filing related registrations. These will be required by the lender. The lender will verify the business credits allotted to your organization. Any credit default, debt, collaterals and assets, keep a detail of all of these so that your small business loan application is crystal-clear about your past and your future.
After you gather all your documents and finalize the lender, apply for the small business loan by filling out the application form. The application form is a comprehensive form where you will have to answer questions about your personal and financial profile and questions about your business too. Know that like you are a small business, the banks which may fund your loan also are small and there are limits on the loan size that such banks can shell out for small companies like yours, so be well-researched and well-prepared to gain maximum benefit.