A lot of small businesses prefer to run debt-free. They avoid debt and find the process of applying for a business loan to be intimidating. But a successful business knows that “You Need Money to Make Money,” and getting a business loan can give your venture the boost it needs to grow and expand. There are numerous business loan opportunities after you launch your company. A business loan can raise working capital, buy inventory, equipment, or products, hire more employees, pay for insurance, advertise, or take advantage of new business opportunities.
Before beginning the application, there are a few things you, as a business owner, should know and get used to.
Preparing your finances and understanding your options
Applying for a business loan is a simple process. It all comes down to setting up your finances, comprehending your needs, and being aware of your options. You should understand your loan requirements and be mindful of the different types of business loans (secured or unsecured), their associated terms and conditions, and the application procedure. It will assist you in making the best choice moving forward.
Maintain all documents
The next step is to arrange and keep track of all the documents needed to submit a loan application once you have determined the reason for your loan. The most important documents required are PAN, Aadhar card, passport, voter ID, and driving license, followed by ITR and bank statements. Additionally, you must keep track of the company’s PAN and present an income statement, balance sheet, and P&L account for the previous one to two years. A chartered accountant should cert or audit all financials to give the documents more credibility. Depending on the situation, a trade license, GST credentials, a declaration of a sole proprietorship, or a certified copy of the partnership deed may also be required.
Think like a lender
Review your loan’s goal and the sum you want to borrow. Your loan should only be used for the stated purpose, and the requested amount should be reasonable. If not, the loan application process might be impacted. Checking your credit score before beginning the application process is advised because it is essential in making credit decisions. Create a business history so that lenders can determine whether your company is profitable enough for you to repay the loan. The last one to two years should have been profitable for your company. The lender will feel more secure if the company has increased annual revenue, average bank balance, and profitability.
Maintain your collateral in case you need a secured loan.
Unsecured loans are popular for smaller sums, but security is required for loans over Rs 50 lakh. Stocks, bonds, real estate, jewelry, machinery, equipment, and vehicles are not commonly accepted as collateral by lenders. Since the value of the collateral affects the loan amount, it is crucial to have clear title ownership of such assets available in advance.
Follow best practices Check your application for a business loan for any errors that might cause a delay. Don’t hesitate to provide any necessary follow-up information; always be truthful and accurate in everything you say. Always keep in mind that more information is always preferable. The final step is to wait and hear back from the lender after you have completed all the steps and submitted the application.