Small businesses need business loans to have an adequate cash flow and expand the business.
But when you are a startup on a fast-track mode to growth, getting a business loan turns out to be downright frustrating and stressful. The main reason is the process being difficult for a new business to obtain loans from a bank or lenders if they aren’t an established enterprise. But this uphill struggle is much easier when you know the tips and tricks to enhance your chances of loan approval. This article will walk you through the five ways to improve your chances to get a small business loan.
Ways to Improve Chance to Get of a Small Business Loan
- Have a Clear Business Plan
One can borrow up to 50 lakhs as a loan amount if eligible. Since business loans involve a lump sum, the lender ensures that you have a solid fool-proof plan. Your business plans are the blueprint to your success. A robust business plan proves to your lender that you will utilize the money in the right direction and know your trade. Such gestures will assure the lender that he is not taking a risk by lending to you.
- Work on Your Credit Score
The credit score or the CIBIL score plays a vital role in determining your credibility as a borrower. Having a good credit score not only takes you ahead of the game but also encourages the lender to give you good business loan interest rates. If you have many debts, missed out on EMI’s, paid your debts late, or applied for business loans with multiple loans simultaneously, your credit score will be on the lower side. Borrowers with a low credit history are considered as high risk by the borrowers. Having a low credit history leads to loan rejection most of the time.
Find out your credit scores well in advance and work on improving them or working on any discrepancies in the scores. You don’t have to worry if your credit scores are low, as there are many simple ways to improve your credit scores.
- Provide Detailed Financial Information
Provide the documents that prove the financial stability of your business as well as your income. Lender’s look for at least 10% revenue growth every year from your business. A steady return in business revenue assures them that you are in a better position to pay off your loan even in case of any problems In future. Present all documents that prove your financial health and credibility like balance sheets, bank statements, ITR returns and GST information. Such gestures prove that your business is financially responsible and that the lender isn’t taking any risk by loaning you the lump sum.
- Submit a Collateral
Having collateral involved in your loan improves your creditworthiness as the risk is considerably reduced from the lender’s perspective. Lenders are always willing to loan borrowers who back their debts with a guarantee like collateral as property or high-value investments.
- Compare Different Lenders
Not all lenders will have the same eligibility criteria. Shop around for lenders who give you competitive business loan interest rates. Do extensive market research and understand your eligibility with lenders. Check their online portal for a business loan eligibility calculator to understand the loan amount you are eligible for concerning that lender. Look for eligibility criteria and understand the requirements of that lender. Knowing the requirements in advance will help you work towards furnishing it. Furnishing clear documentation also plays a vital role in loan approval for small businesses.
Proper planning, transparency, and clear documentation play a vital role in loan approval and save time and effort. Following the above tips will help you improve the chances of getting a loan for your small business.
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