A business loan plays an important role in shaping your dream business. It can be used for several purposes such as the expansion of business, purchasing inventory or providing fresh working capital for your business. However, getting a business loan is not an easy task – you require a well chalked out plan along with a good credit history. Hence, to make it easier for you to get your business loan approved, we have listed a few tips that you should keep in mind before applying for the same.
1. Prepare a good business plan: You need a good business plan before applying for a business loan with your lender. Your business plan should clearly show your revenue generation plan, marketing strategies and your project’s objective. Make sure you have a clear roadmap as this will help the lenders to judge the business’ feasibility and repayment capacity. Your plan should also have copies of financial statements and the data on cash flow projections.
2. Check your creditworthiness: Before agreeing to give a business loan to you, the lenders check personal as well as your company’s credit history. A high credit score increases your chances of getting a business loan, while a low credit score can reduce your loan approval chances. Hence, evaluate both your and your company’s credit report to ensure that your loan application isn’t rejected.
3. Do your research thoroughly: It is one of the most important things to do before applying for a business loan. You should do research on all the lenders available. You can compare business loan interest rates, processing fee, preclosure charges, etc through fintech lenders and apply for the one meeting all your requirements.
4. Proper documentation: Before applying for a business loan, it’s important to keep all the documents in hand as a lack of proper documentation can lead to outright rejection of your business loan application. The important documents required by lenders include business entity’s proof, income tax returns of the last few years, audit reports, KYC documents, bank statements, etc.
5. Check your cash flows: Assess your cash flow projections before applying for a business loan. If you have a strong history of high revenue generation, the chances of getting the loan approved are also higher. But, if you have a weak history, you may be charged a higher interest or your loan application might get rejected. Hence, cross-check your cash flow statements and projections to ensure that you would be able to pay your dues on time along with the interest chargeable.
6. Know which type of loan you will need: Before applying for a business loan, it is better to understand the type of loan that works best for you. You should be aware of all the details of various loan categories – in terms of tenure, interest rates and documents required to procure them. Banks and digital lenders often categorize their loan products for the ease of disbursement and management. You can consult the lender to borrow profitably.
So, if you are planning to take a business loan, ensure that you have a good business plan and solid revenue model for the same. Also, make sure you have all the required documents along with a good credit history for easy approval of the loan.