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10 points you need to remember before applying for a business loan



When you are running your own business, it is your responsibility to handle multiple tasks at the same time and work for extended hours, just to make sure that your business venture stays on the path of growth. In the initial stages, you fund the monetary requirements of the business through your own funds, but after a certain stage, it is imminent that your personal funds would dry up. Though, the requirement to put in additional money into the business venture would always be there.

So, taking a small business loan, is the best option for you in such a situation, as it can help you meet your financial requirements, without affecting your cash cycle.

What is a small business loan and how to apply for one?

A small business loan is described as the credit facility extended by a financial institution for a small business owner. These business loans are meant for investment in business venture only and can be secured and unsecured in nature. The rate of interest, repayment tenor, and the amount available as the business loan depends on your credit profile and nature of the requirement.

With the rapid integration of technology in the financial services sector, applying for a small business loan is an effortless task. You can access the various online finance marketplaces, where you will be able to access information regarding the multiple borrowing options and also file a business loan application online itself. You can choose to apply through the offline channels as well, depending on your convenience and comfort.

Points to remember while applying for a small business loan

At the present scenario, the banking and finance sector has been going through a lot of turmoil. The rising instances of NPAs, bad loans, frauds, and collusions have resulted in financial institutions adopting a strict approach towards processing the business loan applications. If they find anything wary with your application or supporting documents, your business loan application form will be rejected immediately. Therefore, it is important that you take care of the following points while preparing your application for a small business loan.

  1. You must ensure that your CIBIL score meets the threshold specified by the lender regarding the minimum CIBIL score for small business loans. The criterion might differ across the lenders, but in most cases, a CIBIL score of 750+ is desirable and significantly increases the chances of your business loan application being approved.
  2. Do not file multiple applications for a small business loan simultaneously and in a short span of time. This shows desperation on your side and is a red flag for the lenders.
  3. Prepare a detailed project report to be submitted along with the small business loan application. Make sure that you provide detailed supporting documents along with as it shows seriousness and sincerity on your side.
  4. If you are running any loans, make sure that they are being repaid on time. All lenders would require your loan repayment track record and any bouncing charges or write-offs reduce the chances of your application being approved.
  5. Keep a close eye on your bank statement, personal as well as business account. Make sure that you have maintained a good balance in the account and there are no instances of inward cheque bouncing in the last one year.
  6. While preparing the CMA data to support the business loan application make sure you take help from professional chartered accountants and company secretaries. Make sure that you do not leave any loose ends on whose basis your application might get rejected.
  7. Before you finalize any lender, make sure that you conduct a detailed survey of the market to get knowledge about the various business loan offers available to you. You can use the online finance marketplaces to access this information easily and make an informed decision.
  8. Make it a point to read the fine print in the loan agreement in detail. There could be a clause, tucked in sneakily in the agreement, which might be detrimental to your interests. Do not rush into signing the agreement and take your time to reach a conclusion.
  9. Always make it a point to negotiate hard with the lender regarding the business loan interest rate. Remember even a slight reduction in the interest rate, of up to 0.25%, can save you a lot of money.
  10. You should make sure that you assess your requirement carefully and only then apply for a business loan. It is a borrowed fund with interest expenses involved. Borrowing the money and then keeping it in the bank account for an extended duration makes no sense. Borrow only as much as you require, even if your business loan eligibility is for a higher amount.

Availing a small business loan is a wise decision if you are facing a paucity of funds as it helps you ensure the expansion of your business activities as well as honouring the liabilities in a time-bound manner.