Dos And Don’ts to Apply for Small Business Loans

Starting a new business or running your current enterprise can be challenging. You may have to manage many things simultaneously. Above all, you must ensure that there is a continuous flow of capital in the business to keep the operation successful and smooth. The best way to get the desired funds is to apply for a business loan.

 

Today, many banks and NBFCs (non-banking financial companies) in India offer business loans at competitive interest rates and getting credit has become much easier than ever before. However, if you are a first-time loan applicant, it is paramount that you understand the nitty-gritty of the loan.

 

This guide discusses a few dos and don’ts of applying for a business loan.

 

Dos

 

Check your credit score

 

When you apply for any kind of loan, be it a home loan or business loan, lenders consider your credit score. This score is one of the most critical factors in determining eligibility and sanctioning the loan. Most lenders prefer giving loans to only applicants with a high credit score, as it reflects their creditworthiness and responsible financial behaviour.

 

Also, most lenders in India have a minimum credit score requirement, which can vary from one lender to another. So, before you approach any lender, it is a wise idea to check your personal and business credit score and choose the right lender accordingly.

 

Maintain a separate bank account for business

 

No matter the type and size of your business, it is advisable to maintain a separate bank account for it. You can open a current account; it will help you better manage your business-related finances. Also, having a separate bank account for your business will benefit you when applying for a business loan.

 

Know all your funding options

 

There are many ways to raise funds for your business, including the types of business loans and lenders. So, it is advisable that you first assess your exacting funding needs, evaluate the kind of business loan you want, understand the pros and cons of each business loan, compare the interest rates and repayment options offered by different lenders, etc.

 

Once you have all these information, you can make an informed borrowing decision that best suits your needs

 

Keep the documents handy

 

When you apply for any kind of business loan, you must provide certain documents to the lender. It is an integral part of the loan application process. So, before you submit the loan application form, it is advisable to first know the lender-specific documentation requirements and keep all the papers handy beforehand.

 

If you fail to submit the necessary documents, the sanction process may be delayed. In the worst case, the lender may reject your loan application.

 

Use the business loan calculator to your advantage

 

There are many online tools that you must use while applying for a small business loan online. One such tool is the business loan calculator. It is an excellent tool that lets you know the exact EMI (equated monthly instalment) amount payable for the loan you wish to borrow.

 

The calculator is an easy-to-use tool. You just have to enter basic loan-related details like loan amount, interest rate, and tenure, and the tool will give you the results within seconds. Thus, it allows you to compare loan offers from different lenders and make an informed borrowing decision so that the EMI is affordable.

 

Learn from your mistakes

 

Many businesses fail to get their loans approved on their first try. If the lender has rejected your application, don’t feel disheartened. Instead, focus on identifying the exact reason for rejection and learning from your mistake. This will hold you in good stead, and you can get your business application approved without any hassles in the future. 

 

Don’ts

 

Just as it is important to focus on doing things the right way while applying for a business loan, you must also be aware of what to avoid.

 

Limit applying for the loan with the local bank

 

Many small business owners tend to apply for a business loan with only the local banks in their area or with a bank where they hold an account. And if they reject the application, they feel disheartened. However, you must know that the lending market in India is quite expansive, and there are many lenders out there.

 

So, don’t limit yourself to applying for a loan with the local credit union or bank. Instead, explore other options. Many other lenders may help you get the desired loan with favourable terms.

 

Overestimate your income

 

While you prepare a business plan to get a business loan, it is paramount that you be very realistic about your income estimate. Although you may be optimistic about getting valuable returns, your income may not be as high as you anticipated, and you may find yourself in a situation where you are unable to pay off the loan.

 

Being realistic and honest about your income can help you borrow wisely. You will be in a better position to repay the loans on time.

 

Be vague

 

Never apply for a business loan without having an actual plan for how you want to use the funds or borrow more than what you need to meet the business expense. This will eventually lead to mismanagement of finances, and more importantly, not having a clear and specific business plan or goal can lead to the rejection of your business loan application.

 

Fall for the online gimmicks

 

If you do a simple online search for the best small business loans offer, you may come across several lenders online that promise to give you the loan at the most affordable interest rate. However, before you fall for any online gimmicks and proceed with your application process, it is paramount that you do a background check on the credibility and reputation of the lender.

 

Avoid applying for a loan with any disreputable lender that makes claims that are too good to be true. Chances are high that they are not.

 

Final Word

 

Speaking of a reputed lender, you can also rely on Udyog Plus, part of Aditya Finance Limited, for all your business funding needs. Udyog Plus offers unsecured loans to SMEs (Small and Medium Enterprises) without assets who are looking for funds to expand their operations or require quick funds to meet immediate business expenses.

 

The fully digital loan process, from application to disbursement, ensures full transparency in the process. The same-day approval and disbursement allow you to get the funds you need immediately.