It isn't uncommon for businesses to rely on credit to keep operations running, and thankfully accessing loans has become quite easy. Business loans are now available online in just a few clicks, and most lenders even extend specialised offers.
This is mainly because the eligibility for a business loan isn't as strict as it once was. Now, lenders only need you to have a good credit profile, updated KYC information, and basic paperwork to process the loan.
In some cases, some may demand a business plan to validate your need for capital. This important piece of documentation makes the argument in your favour. It highlights the business’s trajectory and the ways in which the capital can be put to use. As such, it forms a crucial part of a successful business loan application.
Read on for strategies and tips to prepare a winning business loan application.
Research and Identify Lenders with Simplified Eligibility Criteria
Most banks and NBFCs offer convenient and easy business loans that you can avail of online. However, lenders also have stricter criteria when the loans have very favourable terms. This helps weed out unqualified applicants.
Alternatively, smaller lenders may provide you with lenient loan terms, but the interest rate they charge on loans for businesses may be higher. Considering this fact, it is important to assess your financial standing, and shortlist loan offers accordingly.
It is advisable to check if your business meets the eligibility for a business loan
set out by your lender before applying for it. Use this opportunity to set yourself up for success, and pick a lender that has criteria that you can easily meet.
While the eligibility criteria vary from lender to lender, the following are some of the basic requirements your company needs to fulfil in order to avail business loan:
- A credit score of 750
- Minimum annual turnover
- Minimum business vintage of 1 to 3 years
- Minimum and maximum age of the loan applicant ranging between 25 and 60 years
Build an Excellent Credit Score Before Applying
Lenders check your credit score and history in order to assess your ability to repay the loan. Naturally, a high score implies creditworthiness and drastically improves your chances of loan approval. In fact, some lenders may even have pre-approved offers for you if you have an excellent score.
Having a higher credit score not only helps you get a business loan, but can also grant access to more favourable rates. This is because lenders associate low credit scores with higher risk, and are less likely to approve applications.
Even if you do manage to get a loan with a low score, the interest rate will be much higher than the rate you would get with a higher credit score.
Pledge the Appropriate Collateral
While business loans can be of both types, secured and unsecured, a secured business loan is usually better. Secured loans generally help you get 75%-80% of the value of the asset you pledge as the loan amount.
Considering this fact, you must pledge the right type of asset to get the funds you need. Putting up collateral also reduces the risk involved in lending, and hence, lenders readily offer lower interest rates to such businesses.
Collateral can be any asset owned by the loan applicant or the business. It includes a transport vehicle, a production unit, a piece of land owned by the company, or any personal asset of the business owner.
Have all the Required Documents on Hand
If you want to enjoy an easy business loan process, do not wait until the last minute to get the required documents. Doing so often leads to delays, or you may notice that certain documents are either missing or require some form of rectification.
Also, lenders will require certain business-linked documents to process your application. These include:
- Business licence
- Revenue Streams
- Tax Compliance
Incomplete documentation is one of the major reasons behind the loan rejections faced by the companies. Hence, ensure that you have all the documents required by the lender.
Draft a Detailed Business Plan
One of the most important pieces of document that banks and NBFCs require to approve your loan is a business plan. A business plan is basically an outline of how a company’s cash inflow functions and how they intend to repay the loan.
Simply put, this document contains the following details about your business:
- Services and products offered by the company
- Working capital requirements
- Information on the company’s receivable and payable
- Company’s annual turnover in the previous year
- Marketing and sales strategy
- Projections and forecasts for the company’s growth
- How the business intends to generate enough income in the future to repay the loan
A perfect business plan would be brief, thoroughly researched, and realistic. Most important of all, it must contain the elements that may help in convincing a particular lender that providing your business a loan would be beneficial.
In short, a business plan is a must-have document if you wish to enjoy an easy business loan application process.
Prioritise Ease of Repayment When Choosing Terms
Showcasing an intent to repay the loan to the lender can also help you get a business loan with ease. Lenders generally consider higher loan amounts as involving greater risk. Alternatively, shorter loan tenures require you to pay higher EMIs and hence, have a greater chance of default in repayment.
By opting either for a smaller loan amount or a longer tenure, you can assure lenders that repayment is a top priority. That way, the business owner showcases the intent to pay off the loan as a priority over saving money.
Whether it is a start-up or an already-established business, the capital requirement is a necessary prerequisite to take your business to new heights. You can also access funds by diluting a part of your company’s equity and getting venture capitalists (VCs) onboard.
However, business loans do not require you to give away a part of your company’s ownership to another entity. So, if you do not want to share the ownership rights of your company, you can avail of any of the easy business loans