Running a business in India and making it successful comes with various challenges, and one of the most important of them is getting financing when you need it most.
Despite the fact that MSMEs contribute generously to India’s national income every year, there is a glaring gap in the ease with which small businesses can access funds.
However, with the introduction of new programs by established lenders, things are slowly changing for the good, and in today’s article we will be talking about exactly that.
If you are a business owner and are thinking about getting a business loan For quite some time now this article has been for you as we will be sharing easy steps you can follow to get approved for a business loan in India fast.
What is a business loan?
A business loan is a financial instrument through which you can borrow a certain amount of money to meet business expenses, either in the form of working capital or a line of credit to purchase new machinery. Nowadays, most financial institutions offer business loans to registered entities, which makes the process of accessing funds easier.
How do I get approved for a business loan?
Now that you understand the meaning of a business loan, here are some tips and tricks you can follow to get your application approved quickly by a financial institution.
- Maintain a good credit rating
When applying for a business loan as a first-time borrower, one of the key factors the lender will focus on is your credit score. Since your business does not have a credit history, the lender will take your personal credit score into consideration to assess your repayment capacity.
Simply put, the numerical value that rating agencies give you after taking into account the factors mentioned below is called a credit score:
- The total amount of credit you have used in the past
- The total amount of loans you have used in the past
- The total number of one-off refunds you’ve made
- The total number of payments you missed
All in all, you need a good credit rating to get a hassle-free business loan. The higher your loan, the faster the approval and the better the loan terms.
- Get good financial results for your business
The second factor that lenders take into consideration is your business’ financial records. Since you are using the loan to cover your business expenses, lenders use your business financial records as a yardstick to understand your repayment capacity.
While there are a number of factors that lenders look at when checking your records, some of the most important are:
- Your income statement
- Your money reserve
- Monthly expense statement
- Your existing debts
Taking all of these factors into account, a lender assesses your creditworthiness and grants a business loan accordingly.
A pro tip to make the process easier is to make sure you’re keeping your business books and updating them regularly from day one, even when you have less to save. The reason behind this is simple; since the lender is trying to understand your creditworthiness, the more data they have, the better they can assess your repayment capacity.
All loan instruments in India are available in two variations, secured and unsecured, and the same goes for business loans. If you are a first-time borrower and neither you nor your business has a history of credit, a safe way to get your application approved is to apply for a secured loan.
In the case of a secured loan, by pledging an asset or collateral with a equity greater than or equal to the loan amount, you can make your application convincing. This way, the risk to the lender is drastically reduced and they will be more willing to offer you a lower interest rate as well as a higher loan amount.
If your business is established as a partnership or as a limited liability entity where more than one person runs the business, a good idea to get your application approved quickly is to apply with a co-borrower. . As the name suggests, in this process, instead of just considering your credit rating, the lender will assess the credit scores of both borrowers, thus increasing the chances of approval.
Along with this, when you apply for a business loan with a co-borrower, the risks of loan default also decrease, thus increasing the chances of approval.
- Limit yourself to one lender
First-time borrowers often make the mistake of applying for a business loan from multiple lenders at the same time. Although it may seem like a harmless process, every time you apply to a new lender, the credit rating agencies will treat it as a serious investigation and lower your credit score by a few points.
One way to get around this is to log into a business loan comparison website and check out the different offers you qualify for based on a single request for your credit score. One to two requests per month are generally treated as minor requests, however, any other request will be treated as a firm request and result in a drop in your credit score.
Due to technological advancements and the presence of several new lenders in the market, getting a loan for a business in India has become easier than ever. So, all you need to do is follow the steps listed above and you will have the required funds in your account in no time.