What Is The Process Of A Business Loan Application?
Learn the key steps to take when applying for a business loan. Here's the 7 Step process on how to apply for a business loan application!
Business loans can be either secured, which require collateral, or unsecured, which are collateral-free. Putting up a collateral can increase the chance of getting the loan amount approved and can also help to lower the interest rate.
Pre-application steps and loan process
Before applying for a business loan, one can take a few steps to maximize the possibility of getting the loan sanctioned and that too on reasonable terms and conditions.
For instance, it is good to repay the majority of the outstanding debt to increase the borrowing capacity.
It is always good to do a little homework before applying for a business loan. This helps to have a better idea about the eligibility criteria and also to find the type of loan that best suits one’s needs.
Here’s a step-wise guide about how to get a loan for business:
1) Identify the different loan types
It is good to know what type of business loans are available and their terms and conditions. Based on the business size and specific requirements, applicants can choose from a variety of MSME and SME loans or working capital loans. It can even be a machinery loan if the business owner’s primary goal is to purchase equipment for expansion.
While term loans are best for large-scale business expansion, a line of credit may be ideal for meeting daily operational costs. Borrowers can start off with microloans for smaller cash requirements. Those with bad credit or no credit history may have to look for secured loans that require collateral.
2) Choose the lender and the application medium
Once applicants have a clear idea about the type of loan that best suits them, decide the lender. In India, there are several business loan providers. A critical analysis of a lender’s loan terms and eligibility criteria can be of great help.
Loan approval takes time. But those needing quick money can choose to go online. Others who are not comfortable online, can choose to visit the lender’s branch with the required documents and a duly signed application form.
3) Check credit scoreLenders prefer applicants with a good credit history and a credit score above 700. A negative credit history reflecting late or missed payments can be a warning for lenders. Those with a poor credit score can think of alternative lending solutions and also focus on rebuilding them.
4) Loan application formApplicants must treat every step of the loan application with the utmost care. Since lenders cross-verify every small information about the applicant, it is sensible to be true and precise about every detail.
5) Prepare a business planThe applicant must submit a detailed business plan along with the loan application. The business plan should clearly state the firm’s purpose, past business track records and future ambitions. It should also specify the purpose of the loan. In other words, the borrowers must tell the lender what the loan is for and how they plan to use the money.
6) Preparing essential documentsBorrowers must keep the necessary documents ready. Certain documents like the company’s bank statements for the last six months, KYC documents of the company (PAN card, ownership papers), KYC documents of the business owner (CIBIL score, PAN number) and financial statements like income tax returns for the last two years, audited balance sheet for the previous two years are necessary to get a business loan application approved. All these documents must be self-attested and up-to-date.
It must be remembered that any incorrect information can cause unnecessary delays in loan disbursement.
Nowadays, many lenders provide online services for document verification. Applicants applying on the bank’s website just need to upload the documents in a specific format and wait for the lenders’ approval.
7) Evaluate the EMIBefore filling out a loan application form, applicants must always calculate the exact financial requirements of the firm. An amount more than what is required can add to more debt. Likewise, inadequate funds can cause bottlenecks.
Another important factor to consider is to evaluate one’s repayment capacity. During the loan tenor, the borrower repays the principal amount borrowed from the bank as well as the interest that accumulates on that principal. Most lenders today provide a free online business loan EMI calculator to estimate the monthly repayment amount.
After weighing all the pros and cons of loans, applicants can submit the application and apply for a loan for business. The lender reviews the application and does a background check before making the loan offer. If the borrower agrees to the terms and conditions of the loan, it will be closed and disbursed.
ConclusionEvery business is unique. So, it is only the business owner who can decide which business loan option is the best for the company. But before applying, it is good to create a business plan and compare and evaluate the terms and conditions of different lenders.
For a quick and smooth loan process, you can opt for an online application. After submitting the initial documents, lenders may require additional documents. Applicants must regularly check their loan approval status and must never delay in providing follow-up information as and when required.
Many banks and reputed NBFCs such as IIFL Finance offer business loans to meet financial requirements from business development to cash flow management.
IIFL Finance provides a variety of loan options to suit different requirements. It also offers the convenience of applying for a loan online and provides a quick and hassle-free process to sanction and disburse the loan straight into your bank account.