How To Get Safe And Quick Business Loans In Trying Times
Getting a small business loan can be tough because of the variables to consider when looking for the right solution. Here are the steps to get business loans easily!
A journey to start and nurture a business can be a deeply satisfying one. But business success requires much more than just good intent and hard work. It also needs money, which, can often times is in short supply.
To bridge the gap between what a business needs and the resources an entrepreneur can deploy, a business loan can come in very handy. And, truth be told, business loans are easy to get, requiring minimal paperwork and can be even be availed online.
Yet, a lot of people find it difficult to get a business loan, and even if they do, lenders are either wary of lending the entire amount they seek or charge very high rates of interest.
Reasons For Loan RejectionThere can be myriad reasons why an entrepreneur may find it difficult to get a business loan. Here are some of these reasons.
1) Lower Than Required Collateral
To borrow a large amount of money, an entrepreneur or business owner will need to offer collateral commensurate with the amount they wish to borrow. If they fall short, a lender may either reject their application for loan or may offer a lower amount at a higher rate of interest.
Collateral can be anything from a commercial or a residential property or land to machinery, which essentially serves as a guarantee that the bank or lender can invoke if the borrower defaults on their repayment.
2) Insufficient Income In Business
A running business that is generating income would typically find it much easier to get a business loan than a new venture, as the income would make debt repayments much easier.
A business with adequate capital and income generation is considered a better bet by the lender, and is therefore preferred over a new venture or one with insufficient income or capital invested.
3) Poor Credit Score
A prerequisite for a quick, easy and hassle-free business loan disbursement is a healthy credit score. Good lenders will keenly look at the credit score before taking a call on the business loan application.
Lenders scrutinize personal and business credit reports before offering a business loan. For first-time or new entrepreneurs with no proven track record, their creditworthiness becomes all the more important.
4) Debt Servicing CapacityA key component of the application process is the assessment of the borrower’s capacity to service debt and interest. A lender will keenly look at how well the borrower can repay the business loan within the stipulated time. If the lender is dissatisfied with the borrower’s capacity to repay, it may become tough for them to take a loan.
Remedial MeasuresSo, how can prospective borrowers deal with these issues? Small business owners, entrepreneurs with new ventures and those who do not have stable incomes can take a number of steps to improve their chances of getting a loan.
1) Proper DocumentationBorrowers must keep all their important documents in place and furnish them when asked for by the lender.
Lenders will need documents like PAN card, Aadhaar card, driving licence, passport, electricity bill, income proof, trading accounts, balance sheets of the last three years (if available), bank statements of the last six to 12 months and passport-size photographs.
2) Sound Business PlanA sound and robust business plan goes a long way in ensuring that micro, small and medium entrepreneurs (MSMEs) or self-employed professionals get the loan amount that they have applied for. This also makes a good lasting impression upon the issuing bank or non-banking lender.
A business plan is essentially a document that outlines a company’s resources, product offerings, staffing needs, projected revenues and the market it is targeting. A sound business plan will mean that the lender will have the comfort of knowing that the business is reliable and will be able to repay them the money that is being borrowed.
3) Strengthen Business FundamentalsLenders would be wary of sanctioning a loan to a business with heavy losses, minimal revenues, poor cash flows or those who already have racked up substantial debts. Such businesses, therefore, should try to maximize their revenue and profit and minimize their existing debts.
4) Put Up More CollateralBusiness owners and entrepreneurs seeking a business loan should acquire enough collateral, including both liquid and illiquid assets like real estate, to cover the same.
Enough collateral gives a lender the confidence that the borrowers will not default on the loan, and that they will not lose money even if they do as they will be able to recover the money from the pledged assets.
On the flip side, borrowers should be mindful of what they are putting up as collateral, considering the risk involved and whether they are prepared to lose that asset in case of a default.
5) High Credit ScoreBorrowers need to make sure that they have not defaulted on any previous loan repayments and that they maintain a good credit record. Borrower should also settle all loan repayments in time and clear any pending repayments. This is critical and is one of the biggest reasons why business loans are refused.
6) Look For Alternative Financing OptionsBorrowers who do not have a good credit history, and have defaulted on past repayments, can still get a loan, albeit at a higher rate of interest. Such borrowers can even opt for term loans, or lines of credit.
ConclusionAs an entrepreneur you should make adequate investments into your business to sustain and grow your operations. And if you are short of equity capital, a business loan can cover up the shortfall quickly.
While a large number of banks and non-banking finance companies provide business loans, it’s important that you should look to borrow money only from a reputable lender like IIFL Finance.
Indeed, IIFL Finance provides a quick and convenient process to approve a business loan. The company makes sure that your business loan application is processed professionally, assessed thoroughly and the loan is disbursed in a timely manner. IIFL Finance also offers flexible repayment options that will help you pay back both the principal and interest in line with your business’ cash flow.