India’s economy is characterized as an evolving market economy. Business, small or large, plays a pivotal role in supplementing its growth business loan. However, firms are often faced with the hurdle of setting or expanding due to a lack of funds.
Many banking and alternative lenders have come forward to assist firms in this regard. Listed below are the eight essential things an applicant of the company should have while applying for a business loan. This checklist will help you to get instant approval on loans.
Checkpoints before applying for a business loan:
~ Collateral or security is a means for the financial platform to ensure the repayment capacity of the borrower. It also reduces the credit risk involved.
~ Financial platforms offer unsecured loans/ collateral-free loans for small amounts; however, this security is mandatory as the loan amount increases.
~ Startups are considered as high risk. Hence the insistence of collateral will be more compared to high scale business.
~Land, home, gold, etc. can be pledged as collateral. However, it can vary based on financial platform policies.
- Credit score-
~Startups/ Single owner business
In startups or single-owner firms, the owner becomes the face of the firm. Hence to measure their accountability with finances, financial platforms often delve into the personal credit score of the borrower.
~ Multiple partners
For a business involving numerous partners, the financial platform or the financial lender delves into the personal credit score of each individual before sanctioning the loan. If the company has assured its creditworthiness through multiple transactions in its business account with the financial platform, they will only verify the business credit of the firm.
- Business plan-
A healthy business plan envisages higher returns. Hence a strong strategy can be the lender’s determining factor about the authenticity of the business. Details that every borrower should include in their business plan are :
- financial goals
- future sales
- marketing strategy
- target market
- number of employees
and so on.
The quantum of the loan amount sanctioned is highly dependent on the plan that is drafted.
- Purpose of loan-
Similar to the business plan, the lender also likes to be informed on the prospect of the loan amount. High efficiency and foresight with the loan amount can improve the chances of loan approval.
- Turnover for existing business and record-
The approval for the business loan application of an existing business is highly dependent on its turn over. Based on the lender, the turnover range for loan approval can vary between Rs. 20 lakhs to Rs. 1 crore. A clean record with a history of success can also heighten the chances of business loan approval.
- Insurance details-
Lenders or financial platforms also insist on particulars of insurance policies to ensure the ability to repay the loan should there be a crisis.
- Business permits and license-
To ensure that the firm operates in convergence with rules set by the government of India, financial platforms may also ask for the operating license or permit of the company. These permits are to be submitted along with the business application.
- Affiliations– Financial platform would also require details of any further associations that the firm might have with other companies. It will help the financial platform realize the scope of any potential risks before sanctioning the loan.
Business loans are the most viable options for company owners during financial crunches. However, to receive the credits, firms should satisfy specific business loan eligibility criteria that differ between lenders. Also, the interest rates offered varies between banks and NBFCs. Firm owners should compare the various interest rates offered before availing a loan.