Making a business loan application can be a challenge, especially for small & medium-sized businesses. It is often time-consuming and requires efforts on the part of the business owners or promoters. However, with a systematic approach and carefully drafted business loan application, you can easily get a business loan in India.
Here, our experts have put together 7 smart tips to get a business loan in India:
Have a plan
Before approaching a lender for a business loan, try to chalk out a plan. For start-ups or small businesses, it is essential to draft a business profile. A pre-existing cordial relationship with the bank can be an added advantage. Before making a business application, check the business credit health report and ensure that all the income documents such as ITR, balance sheet and Profit-Loss statements are up to date. Take the required time before applying for a business loan instead of doing it in haste. Professional advice for chalking out a business loan application is recommended.
Be clear on the reason for a business loan
A business may require a loan for various reasons, including purchasing of equipment, expansion, funding of long-term growth, investing in real estate, growth through acquisitions, etc. Miscellaneous reasons also include additional funds to cover monthly losses, urgent working capital needs during business slowdowns, acquiring non-related business assets, etc. Therefore, it is important to know the exact purpose for the business loan to easily get a business loan approval and navigate the funds in the right direction.
Know the required loan amount
Without knowing the exact loan amount required by the business, it is best to avoid making a loan application. To improve the chances of business loan approval, always calculate the exact financial requirement of the business so that it does not result in a surplus or shortage of finances later on. Getting a business loan approval of a lower amount may lead to a working capital crunch, whereas, an approval for a higher loan amount could lead to wastage of finances and unwanted debt burden.
Thus, to safeguard your business from such situations, a well-planned business budget is essential. A well-thought-out budget also helps the business have a cash flow perspective which can help in answering the lender’s queries regarding the utilisation of finances. This can enhance the chances of business loan approval.
Business credit score
The business’s credit score is one of the most crucial aspects considered by lenders before sanctioning a business loan. A credit score is a reflection of the business’s repayment capacity and reliability. A good credit score helps in gaining a lender’s trust in the business as far as loan repayment is concerned. It is advisable to have a credit score above 750 as it is preferred by most lenders. The age of the business also makes a difference. A lender may easily offer a working capital loan or a term loan to a business that is established in the market for more than 2 years.
Many lenders also extend business loans depending on the cash flow of the business since it acts as a measure of the loan repayment capacity of the business.
Additional Reading: 6 Tips To Improve & Maintain Your Business Credit Score
Identify the appropriate loan lender
There are many business loan providers in India, such as HDFC, SBI Business Loan, etc. Make sure to conduct thorough research of all available lenders before finalising one. A careful study about the lender’s eligibility criteria, loan terms and conditions, and loan benefits are of utmost importance. There is also a vast online business loans marketplace that can help you to compare various lenders and choose the most suitable business loan offering.
Carefully plan your business loan application
A business loan application is key to getting the required loan amount for business expansion and sustainability of operations. Therefore, you must prepare the business loan application in a manner that the lender agrees to the desired loan amount for the business requirement. The loan application should contain the business owner’s profile, business documents, business plan, financial statements of the business, personal financial information of the owner, etc. The documentation should be maintained in sequential order for easy reference by lenders.
Time and patience reap rewards
Once the business loan proposal is investigated and accepted by the lender, it normally takes a minimum of 2-4 weeks to process the loan application and grant the finances. It is important to check with the lender periodically for an update on the loan application.
Check whether any other documentation will be required to get the approval of the loan application. A business should always be prepared to provide additional documentation without any delays so that it allows the lender to approve the loan application in time.
Additional Reading: What is the importance of your company's credit score for business loans?
There are various options available for business loans in India. However, it is important to remember that multiple loan applications may hurt the business’s credit score. Hence make a calculated business loan application by considering the tips shared above to get a business loan successfully.
- How can I get a business loan to start a business in India?
There are many private banks and lenders offering business loans in India. Businesses can also make use of various government-backed schemes such as the Mudra loan scheme, MSME loans, etc.
- Which bank business loan is best in India?
Some of the top business loan offerings by banks in India include HDFC bank business growth loans, SBI simplified small business loans, IDFC First bank business loans, and Citi bank business loans.
- How much can I get on a business loan?
Depending on the size of the business and other eligibility criteria such as the purpose of the loan, years in existence, credit score, etc, businesses can avail of different loan amounts.
- Is it difficult to get a business loan?
It is not difficult to get a business loan as long as the business meets the lender’s expectations with regards to credit score, repayment capability, the purpose of the loan, etc.
- Can I get a business loan with a 500 credit score?
It may be challenging to get a business loan with a credit score of 500 as it is considered a low score. Businesses who want to apply for a loan should aim for a minimum credit score of 750 to easily get a loan sanctioned.