A Business Loan provides the much-needed cash injection to fund regular business operations or finance expansion goals. Irrespective of size, several Business Loan lenders provide collateral-free funding options that entrepreneurs can borrow to cover their expenses. However, before approaching an NBFC for a Business Loan and knowing how to get a Business Loan in India, one must create a detailed plan to use the acquired loan amount and repay it on time. Here are a few things to know when approaching Business Loan lenders.
Who Can Obtain a Business Loan?
The first step is to check whether the applicant is eligible for a loan. Since each lending institution has unique eligibility conditions that loan seekers must fulfill, these often qualify for a loan:
- Proprietorship
- Private limited company
- Closely held non-listed company
- Partnership firm
If the applicant is one of these, they must fall under the lender’s minimum and maximum age requirement. Moreover, they must have a minimum turnover as the loan company specifies. Most NBFCs also consider the business vintage, which means the company must be operational in the industry for at least three years. They also require the business owners to report their audited financial statements, capture turnover through GST returns, and channel their business through a banking system for a few years.
Best Time to Apply for a Loan
There is no best time to apply for a Business Loan. Timing does not impact approval and eligibility. A business owner can find out how to apply for a Business Loan online and begin the application process whenever they have a financial requirement. However, those with a good credit score and low debt-to-income ratio have better chances of getting easy approval.
Factors Determining the Interest Rate
Here are a few factors that determine the Business Loan interest rate:
- Nature of Business: Lenders determine the business nature while determining the interest rates based on their profitability, risk factors, lawfulness, etc.
- Credit Score: Applicants with a decent credit score of 700 or above get lower interest rates with better terms and conditions.
- Business Experience: A well-established business with a few years of experience is likelier to get a better interest rate than a new one.
- Annual Turnover: A business with an annual turnover or Rs 1 crore or more has a better chance of getting a lower Business Loan interest rate.
- Profit and Revenue: Lenders always check the business revenue before deciding their interest rate.
- Repayment History: Another major factor that affects the interest rates is the applicant’s past repayment history.
Tips to Ensure Getting the Loan Approved
Obtaining a Business Loan means efficiently demonstrating repayment capability. Here are some tips for doing that:
- Maintaining a Decent Credit Score: An applicant’s personal and business credit score is crucial to determining their creditworthiness. Their payment history with multiple credit institutions significantly affects their loan eligibility. Therefore, maintaining a good credit score indicates that they are financially disciplined and have low chances of default.
- Demonstrating Adequate Cash Flow: When deciding loan eligibility, lenders investigate a company’s cash flow and ensure it is adequate for the loan size they are demanding. They also scrutinize their existing debts and previous ITRs to determine whether they can pay the loan EMIs on time. Therefore, demonstrating an adequate cash flow will convince the lenders to approve a loan without collateral.
- Keep the Required Documents Ready: Since documentation is an important process of a loan application, gathering and keeping them ready before the application streamlines and accelerates the approval. Depending on the lender’s requirements, applicants must provide their identity and address proof, financial documents, proof of business ownership, etc.
Applying for a Loan Offline or Online?
Applying for a Business Loan online is much faster and more convenient than the traditional offline process. Some factors in deciding how to apply for a Business Loan include the following:
- Tech-backed application process speeds up the entire verification and approval formalities.
- The online process makes loan comparison easier for the applicants, helping them find a better loan scheme.
- Business Loan calculators available online make the decision-making process better.
Apply for a Business Loan after weighing all the advantages and disadvantages to make a business attractive and creditworthy to lenders. Aspiring borrowers should assess the available options and choose a loan plan with the best terms. Taking time to select the right Business Loan plan and knowing how to apply for a Business Loan saves a lot of hassle and lets a business grow exponentially in the future.
