In the last six months, small businesses throughout the country have struggled to stay afloat. Revenues have been knocked off the MSME’s balance sheet and also affected their hopes to survive. About 74% of the small businesses have shut down in the country.
One of the primary reasons for this is because these small-time businesses are unable to meet their financial requirements, thus highlighting the importance of availing external funding. Small business loans made available by financial institutions across the country, have thus become the most viable solution to avail credits to meet business-related needs. However, there are certain aspects to this advance that business owners must consider before applying to ensure approval. Listed here are some business loan requirements to consider before applying for a small business loan.
Business loan requirements to consider before applying
- A solid business plan
Any financial institution or NBFC, before providing a business loan, would want to know about the applicant’s credibility. Businesses will, therefore, need a full-fledged plan detailing information on pre-set goals, market analysis, past and projected revenue, expenses and yearly growth.
To enjoy swift approval of business loans, an entrepreneur will need to invest considerable time and energy into developing a full-fledged business plan. Further, this is also one of the requisites to be a successful small business owner.
- Organising documentation
Transparency is a necessity to enable a seamless application process. That is why for small business loans, proper documentation is of utmost importance. Applicants should back their business’ eligibility with proper documentation. This includes extensive financial records, account statements, loan history and balance sheet.
The documents required to avail of a business loan vary across lenders. Individuals must look through the checklist before applying.
- Check your eligibility to avail of the loan
Most financial institutions set a few eligibility parameters that business owners must comply with to enjoy fast approval on the applied amount. These parameters are set pertaining to an applicant’s age, business vintage and continuity, healthy CIBIL score, etc.
On qualifying under these parameters, individuals can also enjoy pre-approved offers brought by financial institutions like Bajaj Finserv. These offers are available on various financial products, including business loans, personal loans, etc. You can check your pre-approved offer by providing your name and contact number.
- Gauge repayment capability
Most NBFCs take a look at a business’ financial statement for the last six months before deeming it eligible to avail of the advance. This is why it is crucial to take stock of one’s finances and gauge the repayment capability before applying.
Doing so not only helps in boosting the chances of loan approval but also eliminates the risk of default. This is one of the crucial pieces of information you need to apply for a business loan.
- Credit score
CIBIL score is another important aspect to consider when applying for a business loan. This score helps gauge the creditworthiness of the applicant. It assures the lender that the applicant can pay off the loan availed.
You can check your CIBIL score online. Every individual is entitled to a free credit check once a year as per RBI guidelines.
The CIBIL score will also help you understand if there are any outstanding liens against your credibility. A high credit utilisation ratio of above 40% also affects the credit score.
- Choose an appropriate tenor
To ensure approval of your small business loan application, you will need to calculate the estimated time required to pay off the loan amount. After considering factors like interest rates, opt for a tenor that will suit your repayment capacity.
Therefore, by considering these six factors, you can make your small business loan approval more seamless.