If creating a business from scratch isn’t easy, neither is maintaining one! Before the COVID-19 narrative struck the business sphere in India, smaller ventures had just begun flourishing. In one swoop, the series of lockdowns and changing buyer interests toppled several new establishments – including some cherished old businesses.
Though, that shouldn’t discourage one from pursuing their entrepreneurial dreams! The Government of India has designed schemes that allow businesses to acquire the necessary income to deal with such unforeseeable blows. It includes applying for business loans through banks and other lenders.
More than 39,000 new ventures have access to private equity and debt funding options. However, this isn’t the same narrative for everyone! During the initial stages, funding is a challenge for most startups, including those in the Micro, Small, and Medium Enterprises (MSME) sector. Due to their limited access to formal credit, the government has devised business loan schemes to elevate this situation.
There are five types of business loans sanctioned by different financial institutes in India.
- Letter of Credit: Commonly used in the trading business, it offers guaranteed funding to enterprises that import and export goods/services
- Overdraft Facility: Even with zero balance, continue withdrawing cash from your account and pay interest rate only on the sum utilised from the sanctioned limit
- Term Loan: Offers a specific amount that’s repaid in regular payments over time with a fixed or floating interest rate
- Working Capital Loan: Such loans manage the daily expenses incurred by businesses, including various expansion needs like hiring staff, paying salaries, maintaining inventory, etc.
- Government Scheme Loans: Promote entrepreneurial initiatives among citizens and offers loans to those engaged in sectors like trading, services and manufacturing
As an entrepreneur, you can provide your business with additional cash flow with many benefits! Most banks and NBFCs don’t necessarily track the usage of the sanctioned sum, giving you the flexibility to utilise as you see fit. Furthermore, unlike an investor or other shareholder, you don’t need to pay a return on the profits generated. Just repay the total sum and the interest amount as agreed on time.
5 Steps to Apply for a Business Loan
A business loan could play a pivotal role in overcoming the financial crisis incurred by your business. Taking a page from the hardships experienced by businesses during peak COVID-19, a business loan could solve most of your fiscal problems. As long as you’re eligible for a business loan, you can efficiently resolve these matters.
To avoid any complications during the process, consider following the steps to apply for a business loan.
Check your Credit Score
Launching your business and debuting as an entrepreneur is nothing short of exciting. However, if your business is under three years old, the lender will evaluate your personal credit history and the enterprise’s credit history. So, before applying for the loan, improve your credit score for better approval chances.
Find a Suitable Lender
Browsing through numerous business loans and weighing offers can be a frustrating ordeal.
If you own a bank account, apply for a business loan there! Since they already possess your details, it will shorten the process and acquire better interest rates.
Compare Interest Rates
Avoid rushing into applying for a business loan – you might miss out on better deals with lower interest rates! Opt for a lender that offers the best Opt for a lender that provides you with the best loan terms and interest rates for lower EMIs. Though, the interest rate largely depends on your credit history.
Review Your Eligibility
Applying for a business loan through multiple lenders can alarm others. Instead, visit their websites and inspect the stated criteria for eligibility. This step may require you to submit basic details like the business’s name, active operational years, address, industry, etc.
Assemble Mandatory Documents
Once you’re marked eligible for the loan, it’s time to gather all the necessary documents.
Generally, lenders require you to submit documents like ID proof, bank statements, income tax certificates, financial audits for the last three years, etc.
Realising your entrepreneurial dreams comes with its own hardships. But, you don’t need to sail through these difficulties alone! Elevate your financial constraints and reap the benefits of a business loan.