Smart Ways SMEs Can Apply For A Quick Business Loan

​​The key to any successful business is a solid financial base. Any financial setback can endanger a company’s ability to expand and survive. This is especially true for small and medium-sized enterprises (SMEs).

Nearly a third of India’s economic output, or GDP, and nearly half of its exports come from the micro, small, and medium-sized enterprises (MSMEs). Therefore, it is essential that credit to the MSMEs be significantly increased if India is to reach its goal of becoming a $5 trillion economy in the coming years.

Over the past few years, the Indian government has initiated several steps to make it easier for MSMEs to set up shop, sustain their operations, and expand their business. Nudged by the government, many commercial banks and non-banking finance companies have ramped up lending to MSMEs as credit is critical for their survival and growth.

These enterprises can avail business loans to fulfil a wide range of requirements. These include buying raw materials and inventory, buying machinery or equipment, expanding their business, and meeting working capital needs.

There are several measures SMEs can take while applying for a quick business loan. Here are a few smart ways to do so.

Ensure All Documentation Is In Order

A business loan can either be an unsecured loan, which does not require any collateral, or a secured debt, which needs some kind of security. In either case, the prospective borrowers must keep their documents in perfect order.

All lenders will seek documentation regarding the business finances, tax returns, any other debts or liabilities it may have, the owner’s individual income tax returns, address proof, KYC documents, etc. The requirements are likely to differ from lender to lender.

The applicant has already completed half of the work if they can satisfy the lenders by providing all the necessary documents. Any missing documents could hurt the loan application by the SME and lead to a delay in the business loan approval and even cause it to be rejected. Therefore, obtaining a business loan requires proper documentation.

Good Credit Score

A good credit score is a critical requirement for any SME for securing a quick business loan with favourable terms for repayment and a low rate of interest. If the business is new and has an inadequate credit history, the business owner’s personal credit score will be considered.

The business credit score is based on a number of factors including credit history, repayment behavior, open lines of credit, outstanding debt, credit utilization ratio, debt-to-income ratio, etc.

Prospective borrowers must be careful to avoid loan defaults and repay the loan and interest on time and in full in order to maintain a good credit score. Additionally, any unfavourable reviews from clients, prior creditors, suppliers, or vendors may impact the credit score and thereby hurt the process of securing a quick business loan by the SME.

Present A Strong Business Plan

A strong business plan must be in place for the owner of the company or entrepreneur to make a good impression on the lender or anyone else in general to secure a quick business loan.

The business plan should include some key points such as the complete project pipeline in the business and what has been executed so far, along with future plans for marketing and customer acquisition.

One must also present a comprehensive budget plan for the business as a whole that will give an overall insight to the lenders of the current financial situation of the company and the roadmap ahead.

It is also advised to point out any red herrings and disclosures that may be important for the lenders to know.

Maintain Stable Cash Flow

Before making a loan, reputable lenders are known to check a company’s cash flow position. A lack of cash flow can cause a lot of trouble because it suggests that a company may struggle to pay back the loan and interest over time.

A good lender will always evaluate the company’s liquidity and take into account parameters like the current ratio and the debt service coverage ratio, which will give them an idea of how well a company can pay back the debt. These ratios should typically be 1 or as near to it as possible.

Conclusion

SMEs need to grow their business and they can power their expansion with small business loans from prominent NBFCs like IIFL Finance that offers credit facilities quickly at competitive interest rates.

IIFL Finance loan products are tailored to different business loan requirement and can be availed online with minimal documentation process. The company provides MSMEs with small unsecured loans of Rs 10 lakh and Rs 30 lakh if they do not have, or do not want to, put up any collateral. IIFL Finance also offers secured loans to MSMEs of up to Rs 35 lakh and as much as Rs 10 crore if they have a property they can keep as a mortgage.