Granting loans to small businesses and startups is a hard task for lenders. These firm often not get the opportunity to succeed in business owing to lack of capital. Having a lump sum amount of capital helps in starting a business. Often the person who is willing to start a business fails to initiate the process due to lack of capital. Thus loan stands as the only option they can choose.
Business loans for small businesses are granted when the eligibility and affordability criteria are fulfilled by the owner of the business. The lender often filters out the capability of the businessperson who can actually repay the amount. If a business person could not show assets like property and the potentiality of the business, loans are not granted to them. Due to the negative response often small entrepreneurs fail to make the business stand. Most of the rejection of business loans for a new business is due to the inability of the business person to repay the loans.
Lenders usually consider some of the criteria which convince and satisfy them to actually grant the loan amount. Thus proper documents of the newly started business are most important before applying for a business loan. Proper documentation also includes legal registration of the business with the government.
A business loan is always risky and stringent as it is different from a personal loan or loan against property. A loan turning into NPA is the most vital factor which makes the lender have a second thought before actually granting the business loan. Businesses often suffer from the risk of not succeeding and gaining profit. If profit is not earned the revenue will not be formulated which in turn results in lack of capability in repaying the loan amount. Thus it harms the owner as well as the business.
A proper structure of the business is, therefore needed which can earn disciplined revenue and payments from the customers. Keeping consistency in earning revenue allows an efficient functioning of the business without any financial barriers.
Businesspersons should consider some of the factors before applying for a business loan. Let us witness what are the factors are:
Strong business documents
Before applying for a loan, make sure that there is proper documentation of your business. The required documents such as business license, trade license, business bank account details, warehouse details, tax details should be arranged and provided for a sound presentation of the authenticity of your business. The business should be recognizable by the lender. Thus it needs to be government certified. Registering a business with the government makes the business recognizable in society. The company should show the registration number of the business when requested. Thus proper documentation of the business firm is needed.
Strong business structure
The skeleton of the business should be strong. The lender gets convinced by the structure of the business. Before applying for a loan make sure that the lender will be satisfied with the kind of business you want to start. The business should seem to fetch a potential profit. Strong business structure makes it easy for the lender to grant the loan. A business which is or will be earning good revenue mostly works as the prime factor for the lender to grant loans. From small requirement to big investment everything is included in the business prospectus. Always remember making a strong business structure is the easiest way to convince the lender for a business loan.
A meeting with the lender
Apart from paperwork and official approach, personally invite the lender to take a tour of the business and the workflow. Physical observation of the business also creates a trustable bond between the lender and the business owner. When the businessperson meets the lender they can personally convince the lender to sanction the loan.
Other loan options
To meet the requirements of the business, the owner can also apply for other loan options other than applying for a business loan. Often some business needs a specific investment for a specific angle. Applying business loans which is of a large amount does not make sense. Angel investors, crowdfunding, small business loans are some of the options which businessmen can avail to avoid business loans.
Efficient cash flow
Make sure that the business runs smoothly with the investments. Make sure that the receivable payments are crediting on time. The businessperson can maintain the balance between the incoming and outgoing funds by efficient cash flow.
If a business person took a loan it is his/her duty to repay it on time with full responsibility. To do this they need proper discipline in payments. Timely repaying the loan is a good sign of CIBIL score which also enhances the goodwill of the business. Credit rating can be enhanced by timely paying your debt to the lender. Disciplinary payment offer offers the scope of future loan applying chances for the businessperson.
Soniya Sharma has been working as a professional charter account at loanClix – Best home loan finance company in India. She loves to share excellent stuff about home equity loan, low-interest personal loans etc. You can also follow her on various social media platforms such as Twitter, Facebook.