India has the third-largest startup ecosystem in the world,where the year over year growth is expected to be 12-15%. In the first six months of 2020, India’s fintech startup raised around $1.7 billion from $726.6 million last year. It was possible as securing small business loans from a trusted financial institution has become convenient and faster.
Though a small company owner can get business loans effortlessly, choosing a right financial institution can be tricky. Anentrepreneur might require a loan with lower business loan interest rate to prevent debt accumulation and ensure timely repayment.
Before taking a loan for small businesses, there are few things that must be checked by every prospective borrower.
Things to keep in mind before opting for a small business loan
1. How much capital does a small business require?
Ideally, the first step before borrowing a business loan should be estimating the exact amount necessary. Opting for small business loans must be seen as a requirement rather than a way of acquiring easy money. A business owner must calculate the cost of buying or upgrading equipment, procuring raw materials, etc. to determine the exact expenditure.
Moreover, knowing the borrowing amount also helps to zero-in on a financial institution. Usually, financial institutions lend up to Rs.20 lakh as business loan to organisations.
2. What are the eligibility criteria required?
Before applying for a business loan, it is wiser to check whether you qualify the eligibility criteria or not. Moreover, it also helps to learn about the business loan interest rate of a particular financial institution.
Some of the criteria for business loans are:
- The business must be operating for three years and more. Moreover, the firm has to show good ROI and steady growth in the last three years.
- Income TaxReturn filed during at least the previous year.
- A good credit profile.
- CIBIL score preferably 750 or higher.
- The applicant’s age must be between 25-55 years.
There can also be additional criteria, varying between different lenders. Therefore, it is advisable to read the terms and eligibility requirements of the chosen financial institution carefully.
3. What are the documents required to apply for a business loan?
Aborrower must properly research before applying for a small business loan as misinformation can result in rejection of their application. An individual can read through the instructions of the preferred bank regarding the basic requirement to get a business loan. If the criteria suit their need, then they decide to opt for the loan.
Typically, the documents required for business loans include:
- An applicant needs to provide identity proof which includes Aadhaar Card, Voter ID, PAN card, driving license, passport or any other government-issued document.
- The borrower also needs to show his or her address proof. Other than the KYC documents, electricity bill, ration card, telephone bill, lease agreement or trade license can substitute as proof of address.
- Documents related to business ownership like registration documents, IT returns, etc.are required as well.
- Financial statements like balance sheets and profit and loss statements of the previous two years, income tax return and bank statements are required during application.
Apart from these general documents, a lender might ask the borrower to submit some additional papers as per their small business loans policy.
4. What is the payment schedule?
Another vital factor in selecting a small business loan is understanding the repayment structure. An applicant must select a tenure as detailed by a financial institution at the time of application. Loan tenure should be carefully selected based on one’s repayment capability, otherwise it may cause severe financial strain while paying off the debt.
5. What is the loan approval process?
A business loan application process usually involves only a few steps.This process begins when you apply for the loan by submitting the application form of your preferred lender. Next,borrowers need to submit the relevant documents. After the submissions are verified, the loan is approved and sanctioned by the lender.
Financial institutions like Bajaj Finserv provide pre-approved offers to existing customers that make the application process even more straightforward. You can easily check your pre-approved offer by sharing only your name and contact details online.
With the advancement of technology, customers expect a faster and seamless procedure for loan approval and disbursal. Therefore, it would be best to check whether the chosen financial institution offers online repayment and account monitoring features or not. Moreover, apart from the above-mentioned points, a borrower should also maintain a checklist for business loan application to ensure minimum hassle at the time of application.