To run a firm efficiently, you must always have enough money. Particularly if you intend to grow, expand, or diversify your company. But there may be occasions when your company lacks the necessary cash flows to cover your present or impending debts. This is the situation where a business loan is useful.
However, you need thorough planning and thorough documentation to obtain a business loan. Along with an in-depth evaluation of your company to precisely ascertain its eligibility for and loan requirements.
A business loan requires more than simply the need for more capital and a well-completed application form. But don’t be concerned. If you’re applying for a business loan for the first time, we’ve compiled a list of 7 basic steps you can take. It will enable you to quickly secure a loan from the best business loan provider in India.
A 7-Step Checklist for Obtaining a Business Loan
Step 1: Determine the Required Loan Amount
New firms should first assess how much money they will need to start off. Understandably, determining the precise amount of capital needed to launch and expand a firm is difficult.
However, entrepreneurs can start the process by first evaluating the upfront costs associated with starting their business. Some of these regular costs include the cost of purchasing tools, machinery, cars, and computers. Along with initial inventory, raw materials, essential office supplies, and costs related to getting permissions and licenses.
Then, an estimate for foreseeable maintenance and repayment costs can be included. Once the required loan amount has been estimated, a start-up can reasonably estimate it.
Step 2. Identifying the Ideal Business Loan
With a clear picture of your capital needs, you can then decide on the type of loan that’s a perfect fit. Traditional business loans provide flexibility with no stipulations on end-use. However, there are tailored options such as:
- Working Capital Loan: To cater to day-to-day business operations.
- Equipment Financing: Specifically for procuring machinery or equipment.
- Line of Credit: Offering flexibility to withdraw funds as and when required.
Step 3. Crafting a Robust Business Plan
When you approach lenders, they’ll often request a detailed business plan. Think of this as your business’s CV. It will encompass data on revenue, anticipated expenses, projected cash flows, and any upcoming investments.
Your business plan is not just a blueprint for your company’s journey but a tool to instil confidence in lenders. They’ll delve deep, looking for your business’s Unique Selling Point (USP), the demand it addresses, and the pace at which it’s likely to become profitable. Additionally, ensure you possess all necessary permits and licenses for your business as lenders might check for these.
Step 4. Assessing Loan Eligibility
Once your business plan is ready, it’s essential to gauge if you meet the lenders’ eligibility criteria. While specifics vary across institutions, a high CIBIL score, typically above 700, is a universal requirement. For fledgeling businesses without a financial track record, this becomes even more crucial.
Apart from a strong credit score, other criteria include:
- Being 21 years or older.
- Holding Indian citizenship.
- Some degree of prior business experience.
Women entrepreneurs might find some leeway in these requirements, promoting gender inclusivity in business.
Step 5. Comparing Lenders
If you satisfy the eligibility criteria, you’ll likely have multiple lending options. Now, the trick lies in comparing these lenders. Factors to weigh include:
- Interest rates.
- Prepayment terms.
- Foreclosure charges.
Recent RBI directives compel lenders to reveal annual percentage rates, which depict the total cost of a loan. Furthermore, assess lenders based on their reputation and the feedback of previous customers.
Repayment flexibility is a pivotal factor, especially for new businesses which might experience fluctuating incomes.
Step 6. Collecting Necessary Documents
Equipped with knowledge about the lender and loan type, it’s time to compile the requisite documents. The list varies based on the lending institution and loan type.
Traditional banks often have a rigorous documentation process, making it challenging for MSMEs without a formal credit history. In such scenarios, start-ups can pivot towards government-backed loan schemes or financial establishments like AGIL. As these options are known for providing unsecured loans with fewer documentation hassles.
Standard documents most lenders ask for encompassing identity verification, income statements, tax return filings, bank details, and financial projections.
Step 7. Commencing the Application Process
With every piece in place, you’re now primed to submit your business loan application. Alongside the application, ensure you provide the assembled documents for verification. Establishments like a loan agency in Ahmedabad simplify this process by allowing both online and in-person submissions at their office.
Venturing into the world of business loans might initially seem complex. However, by breaking it down step-by-step, the journey becomes less intimidating. A well-thought-out approach will not only secure you the capital your business needs but also set the stage for a prosperous entrepreneurial journey.
If you want to secure a business loan, go to AGIL Finance. We provide the Best Loan Services in Ahmedabad with quick disbursement and less paperwork. To take advantage of our fantastic services, contact us at email@example.com.