InvestorQ : I am a first-time borrower for a business loan. Do you have any tips to go about the process?
ananya Sing made post

I am a first-time borrower for a business loan. Do you have any tips to go about the process?

Pratik vyas answered.
3 years ago

Congratulations! That you’re taking a business loan, in itself means that you and your business are going places.

So, let’s get to it. Here are all the aspects you need to take care of before you apply for a business loan:

- Have clarity on your business

Lenders need to be confident about your skills and your potential in making your business work. Before deciding whether to start a business or not and before applying for a business loan, make sure you have answers for the below questions with regard to your business:

o What does your business do?

o What’s your industry?

o Who are your clients?

o How and when do you get paid?

o How have you previously managed credit?

o What are your margins like? Can you sustain them?

o Do you have a track record of success?

o What are you going to use this loan for?

o How are you going to fund your EMIs?

o What makes your business unique?

o Where do you see your business is growing towards?

- Talk to an accountant

You might be very clear with things in your head but knowing how much business loan to take is always a question. Banks will let you know what your maximum eligibility for taking a business loan is, based on your credentials, but it is important to understand how much loan is actually required. Do remember that just because a bank or NBFC is ready to offer you a huge amount, you should not accumulate debt. With the help of an accountant you will be able to judge how much loan is required for your business purpose.

- Build credit

If you are planning to start a business in the next two years, then it is important to start building your credit and contacts today itself. An applicant with good creditworthiness will get a loan quicker with low documentations and interest rates. Irrespective of what type of business you are looking to start, a good credit and having good contacts will definitely help during the course of your business. In order to have high score in your credit rating card, start paying you bills on time, stay away from the defaulters list when it comes to credit card payments and most importantly don’t apply for more loans. Your lender will analyse your credit scoring to a large extent before approving your business loan.

- Maintain a good relationship with your lender

Getting a loan from a lender is not the end of your relationship with your lender. In fact, there will be lot of future scenarios where in you will be required to contact them for information, instruction and support. Thus, it is very important to maintain a very good relationship with your lender at all stages of the business loan. Having a positive relationship might help you to get better offers and add-on facilities. Every bank manager has a say on your loan to a great extent and it is up to the manager’s discretion to offer or not offer a loan to you. Anytime there is a need for cash management, credit-card acceptance, payment solutions, and equipment financing or consumer solutions, this relationship will come to help.

- Accurate documentation

If you produce all necessary documents for your loan at the first go, then the chances of getting business loan approved within 7-15 days is almost 75% high. The documents essential for applying a business loan in India are:

o Last three years’ Income Tax Return (ITR) statements

o Bank account statements

o Residence proof of applicant

o Recent photographs of applicants

o Business proof

o Applicable certification related to practice

o Proof of ownership of the possessions which are used for business purposes

o Identity proofs such as Aadhar Card, Voter ID Card, PAN Card, Company registration certificate, etc.

o KYC documents of the co-applicant (if applicable). In case business loan for women is the category of choice, proof of majority ownership by the woman needs to be provided by the investor.

- Keep your bank statement updated

This is to prove to the bank that being the owner of the bank you are eligible for profit of the business and the same is being credited to your bank account from time-to-time. Having regular and consistent income is an advantage while applying for business loan. Banks will judge your repayment capacity based on this income and accordingly a loan amount will be sanctioned.

- Balance sheet

Business balance sheet will help the bank to get a clear picture of your business. Based on the balance sheet analysis, banks will determine the profit-earning capacity of the business. It is always good to get an accountant to manage your business balance sheet to ensure accuracy and reliability.