10 Key Steps to Taking a Small Business Loan
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Are you someone who believes clocking in 24 hours a day to grow your own business is a lot better than working the nine-to-five grind for someone else? Why then let a lack of funds stand in the way of you pursuing your dream? A business loan can help you start your business effortlessly and quickly and take it to the heights you've always imagined.
Small business loans are helping thousands across the country to jump on or fuel the entrepreneurship bandwagon. If you’re planning to take a small business loan, be mindful of these 10 key steps before applying:
Assess the Reason Why You Need a Loan
Is it to meet capital expenditure, operational costs, or inventory expansion? Pinpoint the areas to utilize the fund because, without a clear expense plan, every small and big business requirement will turn into a money guzzler.
Decide on the Loan Amount
Once you decide the reason, figure out how much money you would need to meet those expenses, as lenders would want to know not just the loan amount but also how do you plan to utilize it. Also, it’s wise to add a little extra cushion money to the figure you arrive at.
Choose the Right Type of SME loan
While term loans are the most common option, you could also go for a bank guarantee or an asset-based loan. Additionally, there are multiple government initiatives, such as the Pradhan Mantri MUDRA Yojana (PMMY), that you can leverage.
Analyze if Your Business Plan Will Pass the Test
Whether you’re starting a new venture or expanding an ongoing one, loan providers will want to review your business plans, such as what its current standing is, what the future look likes, your goals and ambitions, and the steps towards achieving those.
Analyze if You Have a Favourable Credit Score
Besides reviewing the business plan, lenders also look into the credit history of those running the show. It’s always prudent to anticipate how lenders will view this and take remedial actions if needs be.
Collate Your Financial Statements
Your financial statements and accounting records will probably be scrutinized before lenders come to a decision. Note that some may even ask for an audited version of these statements.
Finish the Preliminary Business Detail Requirements
From registering the name, securing a legal identity, to ensuring that you’ve obtained the necessary certificates and clearances, ensure that you’ve completed the basic steps beforehand. For instance, a food-based company may need to secure an FSSAI approval before applying for the loan.
Choose the Right Provider
In a bid to empower more and more small and medium enterprises, today, there are multiple providers offering business loans. But which one is the right fit for you? In a commoditized market, it’s best to do your homework and choose the right match or let experts guide you.
Decide the Security to Pledge
If you’re planning to take an asset-based loan, then you must first select the right asset to pledge. Plus, have all the details pertaining to the selected security ready in order to avoid delays or rejection.
Collate all the Necessary Documents
Make sure you don’t miss out on any important document. From personal documents, financial statements, business plan, loan proposal to all the other documents that you’d need handy to apply for the loan should be in order days before applying.