If you are a business owner and you want your business to get off the ground, then you might need the help of financing options. Establishing your business without taking the help of any outside funding or a business loan can be a daunting task, particularly for SMEs with limited or no financial assistance. One needs funds for business expansion, working capital requirements, digitisation, hiring of staff and more. Business loans can help you in meeting the needs of your business without stretching your budget. However, if you want a business loan approved quickly, you must follow a few guidelines.
Understand the Business Loan Type
Whenever you seek a business loan, it is vital to understand the various business loan options and products available in the market. If you do not understand the term business loan products, then let me clarify to you that business loans come with a personalised loan product based on the borrower's demands.
Whether you need money for a working capital demand or to buy machinery, a business loan includes a variety of options to suit your needs. There are two sorts of business loans—secured business loans and unsecured business loans. The types of business loan products available in the market include term loans, working capital loans, equipment loans and invoice discounting. As a result, to get fast business loan approval, you should carefully select the loan product that is best suited to your business needs.
Credit History
Your credit history demonstrates your ability to pay back debts. It informs the borrower of how many loans you have previously taken and your EMI payment habit. If you have a lot of loans, your chances of securing a new loan are slim. Furthermore, your lender will reject your application if you have ever defaulted on a loan EMI.
Assume you are a lender and someone approaches you for a loan. When you look into that person's credit history, you see that he already has six debts and has defaulted on a number of them. Will you lend money to this type of borrower in this situation? The chances are you would not. Therefore, it is important to maintain a healthy credit history to get your business loan approved quickly.
Complete Your Documentation
Make sure you have all of the relevant documents before applying for a business loan. To analyse the risk connected with your profile, your lender will verify all required documents. Your lender will examine your revenue, income, the age of your business, the risk associated with it, current debts and other factors using the paperwork. Once the lender is satisfied with the paperwork, they will immediately disburse the business loan amount into your account. The documents they may ask for include account statements, business continuity proof, ID and address proof, audited financial statements, business legal documents and business plan.
Financial Statements
Whether you are a small or a large business owner, your lender will carefully examine your accounting records and financial statements before granting a business loan. Always make sure that your business financials are in systematic order. Your financial institution will closely go through your balance sheets, profit and loss statements, cash flow etc. The lenders will analyse your gross margin, accounts payable, cash flow, debt to equity ratio, EBITDA and accounts receivable. It is advisable to have a qualified accountant look into this matter before applying for a loan. Financial institutions usually prefer business statements that are audited by a certified accountant such as a CA. However, many small businesses cannot hire a qualified person for financial affairs due to the high cost of the resource. Also, it is good to have well-organised financial statements to get a quick business loan disbursal.
Security or Guarantee
Whenever you apply for a business loan or any other type of loan, the primary concern for the lender is the borrower's loan repayment capability. To cover the risk associated with your profile, your lender may ask you to put your company assets such as property, equipment, accounts receivable etc. as security or collateral. If you have any such property to put up as collateral, the chances of getting a loan on favourable terms are high. In some cases, your lender may ask you for the personal guarantee of the business owner. Avoid it if possible as it will put your personal assets, not just your corporate assets, at risk.
To Conclude
Many financial institutions offer business loans that are tailored to your company's financial situation and needs. Understanding the lender's requirements will greatly boost your chances of securing a business loan at favourable terms and conditions.
