One of the biggest requirements for a small business is capital. Small businesses require funds to manage operational expenses and carry out expansion activities. However, small ventures often find it difficult to secure funds from lenders and thus filling a loan application seems like a futile effort.
In order to secure funding, small businesses must understand the requirements of lenders and prepare loan applications accordingly for speedy approval.
rnHere are some factors lenders consider before granting loans:
â Stable credit record: Yes, lenders consider a stable credit record before granting a
business loan. If a business has an unstable credit record, the chances of its securing a loan get reduced. However, this varies according to the type of business you deal in. In most cases, lenders overlook the business credit history and prefer to have a look at the owner’s credit history. Just to check regularity of payments. Therefore, a stable credit record depicts the credibility of the business to get a loan. However, it is not the only deciding factor.
â Ability to repay the loan: If a business does not possess the ability to repay a business loan then lenders will decline their loan application. Ability to repay the loan is measured in terms of cash flow and revenues. Several documents like balance sheets, cash flow statements, and P & L accounts must be submitted along with other documents at the time of loan application. Then at the time of evaluation, the lender will assess whether the business has sufficient cash flow to manage repayment. Poor revenues and cash flows will indicate lack of repayment ability. At the same time, this will also affect the credit score of the business.
â Have a concrete outline for your business: As a business owner, you must set milestones and goals for your business. Having clarity of goals will help you create a concrete outline to achieve those goals. A detailed business outline will provide the lenders with a clear picture of where you want to take the business and how you will utilize the funds. Thus increasing your favorability and chances of securing a loan.
â Reserved capital: Here reserved capital refers to savings. Lenders may consider savings as an assurance factor. Savings in your bank account will make the lenders believe you are serious for expansion and survival. It can positively impact your loan application as well. Also, the savings will be helpful for making loan payments when inflows are low.
rnWhat documents are required to file a loan application?
â Financials: Financials are confidential information about a business. Before submitting any documents, it’s best to ask lender which documents they require.
Generally, the following documents are required:
ï Bank Statement
ï Income tax return for 2 years along with the Balance Sheet, Income statement and Profit & Loss Accountrnï Identity Proof of the business (i.e., PAN Card)
ï Government certified copy of Memorandum & Articles of Associationrnï Address Proof (Electricity Bill or Lease agreement)
â Cover Letter: A cover letter is a brief description of the business and depicts the nature of the business. Companies also mention the loan amount they require and purpose for utilizing the funds.
â Resume of the business owner: This is not mandatory, but submitting it can increase your favorability in the eyes of the lender. The lender will become aware of your abilities and business knowledge. Also, they will be able to judge your ability to repay the loan.
â Business Portfolio: A business portfolio provides an overview of the products and internal processes of the organization. Most common elements are:
ï Sales records: These include sales projections, annual sales summary, and details of competitors available in the market.
ï Outline of employees, customers, and suppliers (i.e., the number of employees, number of customers and dealings with suppliers).
Loan Application:
Finally, we come to the loan application. There are many lenders available in the market like Banks, NBFC’s and digital loan providers who offer different types of short-term unsecured business loans for ventures. The choice of a lender should be made very wisely keeping in mind the terms and loan conditions they attach with their loan options. There are lenders who ask for collateral and also charge a heavy processing fee.
If you want to avoid the web of collateral and heavy processing fee, we suggest you have a look at Indifi’s digital lending platform. They are a reliable lender which provides multiple loan facilities like merchant cash advance, invoice discounting, and line of credit for borrowers. Each loan facility is customized according to the requirements of the business. The entire procedure from loan application to approval is done online, and borrowers get funds within a few hours of loan approval. Additionally, Indifi maintains complete transparency in relation to loan terms and processing fees. The borrower only has to pay 2% processing fees during the entire period of the loan.