Every business requires capital to work towards its growth. When a business requires money, there are many ways to get it. Some of the commonly used ways are, investing the business profits back into the business, finding investors for additional capital injection or applying for a business loan.
Of the above-mentioned, business loans are an important element while starting or continuing to build any business. Getting the right business loan is very important for any business’s growth prospects. India has shown tremendous improvement in this area in recent years.
Today, getting a business loan in India is pretty much a hassle-free process. The idea is to know how to get a business loan. Whether a loan is required to fulfil a cash crunch, for expansion, launching a new product, etc, it is important to know how to source funds through a business loan. Here, we will shed light on how businesses can qualify for a business loan through some easy steps.
1 – Check Your Credit Score
While applying for a business loan, any first-time borrower has to showcase a good credit score to the lender. Since the business may not have any existing credit history, lenders will consider your credit score for assessing the capability to repay debt.
A credit score is a reflection of the following:
- Total credit used in the past
- Total loans availed in the past
- History of timely repayments
- Missed payments record
You need a good credit score to easily secure a business loan from any lending institution. It can also mean a higher loan amount, faster approval and better loan terms.
2 – Ensure Up-To-Date Business Financials
The second important aspect that lenders consider includes your business’s financials. Since the loan is required to meet business-related expenses, lenders use the business’s financial statements as a mode of understanding repayment capacity.
Lenders could look into various factors while checking their financial records. Some of the key ones are:
- Profit and loss statement
- Cash reserve
- Statement of monthly expenses
- Existing debts
Based on these, a lender will assess your creditworthiness and extend a business loan once satisfied.
To make the process easier, always maintain the company’s books and regularly update them. The main reason to do so is that the lender will try to understand your creditworthiness and repayment capacity through the information available on various business records.
3 – Apply for a Secured Loan
Most lending instruments in India come in two variants, secured and unsecured. The same is applicable for business loans too. In case you are a first-time borrower, there are chances that you may not have a credit history. Thus, to ensure that your loan application gets approved, try applying for a secured loan.
With a secured loan you will be pledging an asset or collateral as per the net loan amount taken. You can also try to make your application more convincing. Thus, the risk taken by the lender decreases and they will be ready to offer you a lower interest rate on the loan along with a larger loan amount.
4 – Apply for Loan with a Co-Borrower
For businesses that are established as a partnership or a private limited entity, there will be more than one person running the show. In such cases, to get a loan application quickly approved, it makes sense to apply with a co-borrower. Thus, instead of focusing on your credit score alone, the lender looks at the credit scores of all the borrowers involved. This can help in improving the chances of loan approval.
When you apply for a business loan along with a co-borrower, the chances of default can reduce and chances of approval are higher.
5 – Stick to One Lender
A lot of first-time borrowers tend to apply for a business loan with multiple lenders. This may seem harmless, however, every time an application is made with a new lender, credit rating agencies record it as a hard inquiry and your credit score will be lowered by a few points.
You can make use of a business loan comparison website and look through the available offers against the eligibility criteria. You can then make one to two requests per month since these are treated as soft inquiries.
Qualifying for a business loan in India has become easier than ever before. All you need to do is follow the easy steps mentioned above to easily get the required funds for business growth or establishment.