Do not limit your loan application to conventional lenders. Check out digital lenders and NBFCs also.
Business loan can be extremely handy for the self-employed as these can be used for multiple purposes such as providing fresh working capital, business expansion, meeting operational expenses, purchasing inventory, etc. However, getting a loan is much harder for the self-employed than it is for a salaried professional, due to the higher risks involved. Here’s a list of factors you should keep in mind while applying for a business loan:
Prepare a good business plan
A well-chalked out business plan can prove to be very helpful while convincing your lender to grant you the funds. Your business plan should clearly depict your project’s objective, revenue generation plans, marketing and development strategies, etc. Since lenders judge your business’ feasibility and repayment capacity mainly through your revenue generation plans, make sure you have a solid revenue model and a clear roadmap as to how you would be repaying the loan timely and your intended use of the funds.
Be ready with documentation
Even if you have a near perfect business plan with clear goals, lack of proper documentation can lead to outright rejection of your business loan application. Before applying for the loan, ensure that you have all the required documents which the lender may ask for. Documents required by lenders include entity’s proof, last few years’ income tax returns, audit reports, KYC documents, bank statements, etc.
Check your cash flows
Your businesses’ cash flow projections greatly affect your loan approval chances. A strong history of high revenue generation increases the firm’s chances of getting the loan approved. If your business has a weak history comprising irregular or low cash flows, you may either be charged a higher interest or your loan application may get rejected. Therefore, before applying for the loan, double-check your cash flow statements and projections to ensure that these would be enough to repay your loan along with the interest chargeable.
Look at other borrowing options
As different lenders have varying parameters to evaluate your business’ creditworthiness, do not limit your loan applications to conventional lenders. Digital lenders and NBFCs, along with banks, also provide the convenience of comparing and choosing the right business loan and also the suitable lender.
Assess your credit worthiness
Lenders consider personal as well as your company’s credit history while evaluating a loan application. A lower credit score depicts you as more likely to default, and can prove to be detrimental to your loan approval chances. Hence, assess both your and your company’s credit report to ensure that your loan application isn’t rejected due to lack of credibility.
Identify risks that lenders assess
While applying for business loan, be aware of various traits which may lead to a borrower being termed risky. This may include low vintage, weak accounting system, repeated defaults in credit history or irregular revenue. Make sure that your business is not considered risky due to presence of any such traits.
The writer is business head – business loans, Paisabazaar.com