Things To Remember Before Applying For Any Business Loan

Business loans are a type of financing that helps companies with their capital funding or daily business operations. You can take business loans either from banks or from lenders. Banks and lenders charge a small amount of interest rate for the loan, and companies are required to pay the loan within a specified limit of time. The interest rates, repayment terms, and fees are different for different banks depending on the tenure, type of business loan, credit history, etc.

Types of business loans

There are various types of business loans that can help your business operations. The types of business loans are as follows:

1. Term loan

Term loans are the most common types of loans that companies require. It can be unsecured or secured in nature as per the company's requirements. The tenure of the term loans can be between 1 to 5 years for unsecured and 15-20 years for secured loans.

2. Start-up loan

As the name suggests, it is a loan for start-ups. It is taken to start a new business venture. Applicants are not required to have a good credit history for start-up loans. The company's owner or applicant must submit proof of the business registration and existence.

3. Working capital loan

Working capital loan is a small business loan. It is used to overcome the daily cash requirements of a business. It helps to operate the day-to-day business activities smoothly. It also helps to maintain a good balance between cash flow and the business.

4. Loan against property for SME

It is a type of business loan for the companies who require a large amount of loan, i.e., more than INR 50 lakhs. It is a long-term loan that a company needs to purchase machinery or to expand the business. The tenure of the business is up to 15 to 20 years.

5. Equipment financing

Equipment financing is a loan taken to purchase the business equipment and tools. It is also known as a machinery loan. It is one of the most preferred loans to purchase the equipment and machinery for the business.

Business Loan Eligibility

The eligibility for a business loan varies on the type of business loan, tenure, and bank requirements. Some of the basic eligibility to get a business loan are as follows:

• The applicant must be an Indian resident.
• The age of the applicant must be between 25 to 65 years.
• The business must be running for at least three years.
• The business turnover and IT returns for 2-3 financial years is required
• The balance sheet is required to show the business profits.

Business loan tips

Some of the tips before applying for business loans are as follows:

• Business Plan – It is essential to make a proper business plan for the loan. Having a clear view of the loan and why you need it is important.
• Manage cash flows – Having solid cash flow statements, and the balance sheet of the business plays a major role in getting a business loan.
• Credit score – If you have a good credit score, it will easily help you get a business loan. It also affects the interest rate of the loan.
• Proper documents – Have proper documents ready for the loan procedure. It accelerates the process.
• Repayment strategy – Always have a repayment strategy for paying the loan if your primary plan goes awry.

How to apply for a business loan?

Want to know how to get a small business loan? Follow the steps mentioned below:

Step 1: Application procedure

The first step is the application procedure. The applicants can either apply online or can visit a bank or through NBFC. The business loan application is essential. So, you must download the file or get a hard copy. Fill the application form carefully. It is essential to double-check the amount, tenure period, and interest rate of the loan. After filling in all the information, submit the application form.

Step 2: Submit the document

The documents are required to get a business loan. Applicants must submit all the documents required by the bank to complete the procedure. Various documents are required for a business loan, such as:

• Proof of business registration
• Identity proof – It includes Aadhar card, passport, driver's license, PAN card, etc.
• Bank statements and credit reports
• Address proof – It includes the identification, ratio card, passport, electricity bill, rent agreement, etc.
• Deed of partnership
• Financial documents – Financial documents contain the ITR copy, six months of bank account statement, balance sheet for the past two years, P&L statements for the last two years, etc.

These documents are essential for verification purposes. In the case of an online application, you are required to upload all the documents. Also, make sure that all the documents are clear and scanned. You can also submit the photocopies to the bank.

Step 3: Loan sanctioning

After you submit all the documents, the bank will review the information provided by you. It depends on the bank whether or not to sanction the loan. If all the documents are legit, the bank will sanction the loan. You might have to wait for a few days to get your loan approved.

In case of missing documents or information, a bank might contact you to provide the missing information. The loan will be credited to your business account. The tenure of your business loan starts from the day the bank transferred the amount into your account.

Conclusion

To conclude, we can say that small business loans are the most effective loans for business operations. It helps to maintain the cash flow of the business. If you are looking to get a loan for your business, consider reading the steps mentioned in the article. It will help you guide through every step of a business loan. You can refer to OkCredit Bahi Khata for more details on business loans.

Also read:

1) What is a business loan? How to apply for a business loan?
2) Home Loan: Steps to apply, Best Interest Rates on Home Loans & more
3) What is Business Loan? A Complete Guide.
4) How To Get Small Business Loan From Government?

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FAQs

Q. How to get a loan to start a business from the government?

Ans. There are many ways that you can start your business by getting a loan from the government. You can apply for the government's Mudra loan scheme. You can get a maximum of INR 10 lakhs. The government offers competitive interest rates and flexible repayment options as compared to private banks.

Other than that, you can apply for an MSME business loan if you require more than INR 10 lakhs for your business. Other government loans include Start-up India, Credit Guarantee Fund Scheme for Micro and Small Enterprises, National Small Industries Corporation Subsidy, etc.  

Q. Can I get a business loan with no money?

Ans. Every business loan requires a down payment. It also depends upon the tenure of the loan. However, you will need some form of collateral to get the loan from the bank if you have no money. Collateral acts as a guarantee if you fail to pay the loan amount to the bank within the specified period.

Q. What credit score is required for business loans?

Ans. The minimum credit score required to get a business loan is 750. If you have a credit score between 700 to 900, chances of getting a business increase. However, if you don’t meet the minimum requirement of the credit score, you can contact your bank for alternatives. It varies from bank to bank.