The widespread availability of business loans from various lending institutions today has made it convenient for entrepreneurs to raise debt funding for various financing needs. These loans are available at short notice and often come with zero collateral requirement, which makes them widely popular as the go-to emergency financing options for businesses. Getting a business loan today is quick and convenient too. The borrowing business needs to meet only a handful of eligibility requirements laid down by the lender, and avail funding without any asset collateral.
However, some crucial factors must be taken care of when availing a business loan. Here’s a quick checklist to go through and plan your borrowings when availing a business loan for financing your company’s expenses.
When it comes to availing unsecured financing options like business loans, credit score assumes all the more importance than for any other type of financing. It is a 3-digit number assigned by credit bureaus to any entity, individual or business, borrowing funds based on their financial history involving repayment habits, discipline followed, and the likes.
When you apply for a business loan, you must check the minimum credit score requirement that the lender requires you to fulfill as an individual as well as for the business. Commonly, a credit score of 700 or more is desired for the purpose of business loan financing from the range of 300 to 900.
It is best to work on improving your credit score as well when applying for funding as doing so helps improve your credit history and the consequent score. Some useful ways of doing so include the following.
- Repay all existing dues.
- Make timely payment of EMIs and credit card bills.
- Utilise not more than 30% of total available credit.
- Keep monthly repayment liabilities under 50% of your monthly income.
- Dispute any errors or omissions in the credit history at least 6 months prior for timely reflection on the credit score.
Purpose of Financing
A business can require funding for a wide range of purposes, with urgent need for financing often linked to operating expenses raised from day to day. Apart from such working capital requirement, a business can need funding for several other purposes too, such as for asset purchase, new office set-up, upgradation of existing machinery, and many more. When planning on getting a business loan, it is best to first identify the purpose for which you are willing to avail funding.
Doing so allows you to get a clear picture of what you would be putting the use of such funding to. It would also enable the lender to assess your financing plans for the business for improved lending confidence.
Loan Amount Needed
Once you have determined the purpose for which you seek funding, proceed to set the financing quantum needed to fulfill such expenditure. It will help you determine at the onset how much you need to borrow and would let you choose a suitable lender to avail loan from.
Some best lenders provide collateral-free business loans of up to Rs.25 lakh to help enterprises meet their big-ticket financing needs with ease. The total loan amount available to you can differ from the financing value sought based on your borrowing profile, especially your repayment capacity as an entrepreneur.
Business’s Financial Details and Documents
To borrow funds from a financial institution, a business must have all of its financials in place, from stability to documentation backup. Before getting a business loan, you must thus check if all the finances related to your business are in place and well updated or not.
Accordingly, you must arrange all necessary financial paperwork related to your business so that it can be presented to complete documentation when applying. Some important financial documents you would need to submit along with the business loan application form include balance sheet, profit and loss account, income and expenditure account, and Income Tax Return filed for 2 previous years to confirm financial stability.
Previous Performance and Future Scope
Your business’s previous performance and scope for future growth and expansion also weigh down the overall loan availability for a business person. You must thus make sure to have charted out a future-oriented business plan and submit it along with your business loan application. Combine reports on revenue generation scope and fund allocation towards loan repayments to strengthen your loan application.
Alongside, you must carry a repayment plan with you when getting a business loan, which shall allow the lender better confidence on your borrowing plans. Back your application with necessary documents and complete paperwork with ease for instant loan processing initiation. Make sure to check if you meet all eligibility requirements for the loan when applying as doing so improves your chances of loan approval. Keep all previous dues clear by the due dates and ensure not to miss out on any payment to improve your borrower profile when applying for the loan.