Though small business loans are one of the most demanding instruments for business financing, it gets quite challenging to get such a loan. Keep reading to get an insight into the world of business loans, and help you know the required steps that you need to follow to get a small-scale business loan.
Follow These 5 Steps to Get a Small-Business Loan
Thanks to the growing exposure and better understanding of the contemporary market, these days, an increasing number of aspiring entrepreneurs are coming up with workable business models. But sadly, in most cases, they are unable to implement their ideas due to lack of investment. In such cases, getting a small business loan can be an effective option to evolve these ideas into the real world. However, getting such a loan in most cases is extremely difficult, especially in a country like India, which is already suffering from the non-performing asset (NPA). Here, in this article, we will cover the five most important steps that you need to keep in mind to get a small-scale business loan.
- Decide Your Reason to Take a Loan:
Many individuals make the mistake of applying for a loan without having proper reasoning. It is essential to know the exact reason for your loan application and how it will affect the future outcome. In fact, lenders ask the reason why you want to apply for the loan and expect a logical answer for it.
Here are the four most common reasons behind applying for a business loan.
- To start your own startup
- To expand your existing business
- To manage the daily expenses of your business during a tough time
- To safe keep your business 2. Deciding the Nature of the Loan:
You need to choose the most suitable form of business loan according to your requirement. If you are planning to establish your startup, it is almost impossible to get a business loan as the decision making relies more on the cash flow of the organization. Hence, instead of wasting your time and effort on a business loan, you can opt for options like business credit cards, personal loans, or crowdfunding.
Meanwhile, if your business is older than a year and has a consistent cash flow, you can apply for a business loan from a reputed lender.
3. Determine the Type of Lender
As several financial institutions are offering loans, it becomes imperative to choose the lender that is most suitable for your need. However, you’ll be surprised to know that only a few of them offer a small business loan at a reasonable interest rate. Hence, make sure that the lender you choose is reputed, reliable and holds enough experience. You can also compare the interest rates before taking the final decision.
4. Find Out Where You Qualify
Before applying for the loan, it is equally important to know the business loan eligibility of the organization. Here are some points that can offer you some clarity in terms of your eligibility:
- Credit Score
A reasonably good credit score will improve your chance of getting a loan. Try to achieve a minimum credit score of 680, to face fewer rejections. However, if your score lies below the accepted mark, you can consider those lenders who don’t have a fixed credit score limitation.
Lenders often consider your business history before sanctioning the loan. Majority of the lenders prefer at least one year of experience in the field.
- Yearly Transaction
Your yearly transaction revenue will impact the amount of loan. You must have a reasonable transaction history to be eligible for a business loan. However, the amount varies from lender to lender. Therefore, before you apply for a small-scale business loan, it is wise to inquire about the eligibility criteria of the lender.
5. The Documents You Will Need
Here is a list of necessary documents that you required to submit during your loan application.
- Personal and business tax returns
- Your personal and business bank statements
- Financial statements of your business
- Legal documents, like franchise agreement, commercial lease, etc.
By now, you might have realized that getting a business loan isn’t as easy as it seems, especially for the newly established startups. However, you can take advantage of some reliable private lenders who are offering small business loans if and only if you fullfill the business loan eligibility with a flexible approach.