Being an entrepreneur can be a very exciting business! The satisfaction of creating a new business from scratch and making it grow is a unique experience, both exhilarating and frustrating in equal measure. As always, money plays an important part in converting dreams into reality and a business loan is probably one of the simplest and most effective ways to fund your independent venture.
What is a business loan?
A business loan is a simple way of raising funds to start a new business or expand an existing business. It is often an unsecured loan which means that you do not have to provide collateral. This can be a big relief for a small entrepreneur who might not have any asset to spare as collateral.
Typical amount and tenure of a business loan
The loan amount can vary with each lender but can go up to Rs 30 lakhs, depending on the borrower’s eligibility. Business loans are generally short term loans and the repayment period ranges from 1- 5 years.
The documents required differ from bank to bank and could include:
- Completed application form
- Bank Statements
- Income Tax returns, balance sheet with profit and loss account statement, Form 16A
- KYC of the co-applicant
- Proof of business practice
How to apply
You can apply online at many lender websites. You can also ask to be contacted by a representative of the bank or NBFC for further details on the loans offered and to check your eligibility.
Tips for a successful loan application
i.Offer a good business plan: Banks will lend you money if they think that you have a clear idea on how the money will be used and if they feel reassured that their money will be used productively. A clearly thought-out plan that includes cash flows will be a significant factor in your loan being approved.
ii.Check your eligibility: Lenders have a set of eligibility criteria which could include a minimum turnover, number of years in business and minimum annual income. It is important to make sure that you qualify for each of these before you apply for the loan to avoid the possibility of being rejected. Some banks allow you to check your eligibility online in a couple of minutes.
iii.Have the required documentation ready: Many loan applications are rejected because the documentation is incomplete. If necessary, speak with a bank official so that you have an exact list of the documentation required. This will include ID and PAN card details, latest bank statements, latest ITR returns along with a CA certified balance sheet among other requirements. Make sure that you include every document when you submit your application.