If you own a business, or plan on developing a startup, it’s likely that you will probably need finance. Fortunately, today, accessing funds in India is not all that difficult. As long as you prove yourself eligible for a business loan, there will be many banks and financial institutions that would be happy to approve some extra funds for you. While this may not seem like a herculean task, nonetheless, there are various factors that must be kept in mind while trying to improve your eligibility.
Here are a few tips that you could follow to understand your business loan eligibility:
1) Comprehensive Business Plan: By developing a comprehensive business plan, you are offering all possible information regarding your business to the lender. It should include the nature of the business, its purpose and objectives, the target audience, a market study and an estimate of the costs and revenues that the business is expected to have, among other things. It is beneficial to put yourself in the shoes of the lender and understand if there any compelling reasons to invest in your business. This will help you draw up a detailed business plan.
2) Credit Score: A business must establish a good credit history before it applies for a business loan. This will help in the approval of larger loans for greater tenures. A better credit score offers assurance to the lender that you, as a borrower, are less likely to default on repayments. Credit score is also dependent on the number of years your business has been in operation. Ideally, you want your business to have a credit score of 685 or above. If your business is a startup, it’s important that you personally maintain a good credit score before assessing business loan eligibility.
3) Management of Cash Flows: Before approving a loan, any lender will want to make sure that the applicant is capable of repaying the money in a timely manner. The cash flow in business operations reflect the actual liquidity of an organisation. If you need to improve cash flows, make sure your debtors make their payments in full and on time, and simultaneously pay your creditors on time. You could also cut down on any unnecessary expenses, and reduce overhead expenditure. These steps will make it easier for you to get a business loan from a bank or a reputed financial institution.
4) Choice of Lender and Loan Type: Since start-ups have increasingly been getting financial encouragement from the Indian economy, there are plenty of banks as well as non-bank financial companies that offer business loans. It is prudent to study the terms and conditions of various lenders before application. If that’s not all, there are myriad loan types that you might want to explore. Depending on your requirement, and depending on the lender’s eligibility criteria, interest rates, tenure and penalties for payment delays or non-payment, you should decide what loan type to apply for. Financial tools such as a business loan EMI calculator will help you determine the interest you will have to pay, once the loan is approved.
5) Documentation: Once you have finalised on the bank and loan type, you will then need to make sure you can produce all the documents the lender requires to prove that you have business loan eligibility. It helps to have the below essential documents ready:
- Filled and signed application form
- ID proof
- Address Proof of the business
- Business PAN card (if available)
- Previous bank statements
- ITR sheets of last 2 years (if available)
- Proof of Continuation
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