A Business Loan ensures that a business can meet its operational
expenses even during lean seasons. Business Loans come with flexible
tenures and there is no need to provide collateral. Moreover, a
Business Loan can be used for a wide variety of business purposes such
as compensating your staff, purchasing new machinery, or making sure
that your office space is paid up.
However, certain eligibility
criteria need to be met by a borrower for a Business Loan. This is
because the lender needs to be confident that the borrower can meet
all the repayment deadlines.
The good news is that there are
certain time-proven ways in which you can bolster your Business Loan application and make a good
case to get your Business Loan.
Here are five simple tips that
will help you qualify for a Business Loan.
Having Enough Cash Flow
The first thing that a lender will check in your Business Loan
application is your cash flow. How much money are you generating every
month and how much of that is being spent? If you have a very small
operating margin or if you have negative cash flow, then a lender will
be doubtful about your ability to repay the loan.
Hence, it is
crucial to have a positive cash flow with a wide-enough operating
margin to show that you have enough leeway to be able to service the
Business Loan.
You can calculate the monthly payments required
to service your loan through a Business Loan EMI
calculator on the lender’s website. Once you know your monthly
payments, you can check whether your operating margin is wide enough
to be able to repay the loan that you desire.
If your cash flow
is not adequate, then you can consider lowering the loan amount so
that you’ll be able to make smaller EMI payments. You can also
consider trying to elongate the tenure of the loan to see if the extra
time will help your situation.
A quick way to increase your cash
flow is to get rid of any unnecessary business expenditures.
Having A Good Business Plan
You can submit your business plan along with the loan application
documents that are required. Having a good business plan can be a
game-changer for your loan application. If you lack in certain areas
of your application, then having a good business plan can make up for
it.
A business plan needs to detail the planned future of your
business and your vision for it. It needs to consider market research,
marketing, and sales strategies, financial forecasting, and so on.
Further, the plan needs to be set out in the best possible way and
written in clear and authoritative language. Think of it like you’re
pitching a venture capitalist for funding. You’re doing something
similar but it’s debt instead of an equity transaction.
Further,
don’t just present the best-case scenario. The loan officer will want
to know how you plan to service the loan if things do not go as
planned. So, you need to have a backup plan to show that you still
intend to honor your commitments and have a way to reimburse the
lender even if things go south.
If a loan officer has confidence
in your business plan, then they may feel confident in your ability to
service the loan.
Improve Your Credit Score
A lot of people feel that their credit score is out of their
control. They do not understand how it works. However, the fact is
that you do have control over your credit score.
The credit
score reflects your “credit history”. This means that CIBIL checks
every credit that you have ever availed of and notes down whether
you’ve been able to repay the credit on time. This includes your
credit cards and your overdraft facility.
If you have a bad
credit score, then there are several ways to improve it. You can make
sure that all the credit that you have taken is repaid as soon as
possible before the payment due date. You can keep separate accounts
for your business so that your credit score does not hit negatively.
Further, you can ensure that your credit utilization ratio hovers
around the 25% mark. This will help you qualify for a
Business Loan.
Also Read: 5 Useful MSME Business Loan Tips For Young Entrepreneurs
Make Sure All the Documentation is in Order
Your Business Loan application will contain certain documents
such as your identity, your financial statements, your income tax
returns, your business accounts, and so on. It is essential that all
these documents reflect well on you and all the information is
accurate.
Further, the loan officer may ask for additional
documents at any time. These documents can be the articles of
association of your company, your sole proprietorship declaration,
and so on. You need to keep all these documents available and ready
to send at a moment’s notice. It will be good if you have both hard
copies as well as soft copies. This will reduce the time it takes to
process your loan as well as show that you’re a seasoned
entrepreneur and keep your business organized.
Be Clear on the Purpose of Your Loan
A Business Loan can only be availed for business purposes.
However, it gets more detailed than that. You need to be able to
communicate to your lender the exact reason for your loan.
Are
you taking out a loan to be able to pay your employees? Are you
buying more raw materials? Are you opening a new office? And so on.
If there is a clear reason for the loan, it is more likely
that you will qualify for Business Loan.
Wrapping Up
There are several ways in which you can improve your Business Loan application. Make sure that you go to the lender’s website and check their eligibility requirements. These requirements will give you a sense of what the lender is looking for. Further, ensure that you put your best foot forward and leave a good impression.
FAQs
- Can I get a Business Loan with a 500-credit score?
A credit score of 500 generally falls into the “poor” range, which is an indication of a high risk of defaulting on loan payments. However, there are still some alternative lenders and financing alternatives available for individuals with lower credit scores. These include
Online lenders: They have more flexible lending criteria. However, they may charge higher interest rates to compensate for the higher risk involved.
Microlenders: They are non-profit organizations that provide small loans to entrepreneurs. The purpose is to support small businesses.
Peer-to-peer lending: Some platforms help in connecting borrowers and lenders. These lenders provide loans to borrowers with low credit scores as well.
Alternative financing options: Alternative financing options like business credit cards, and business lines of credit are very useful for those with a low credit score.
- Is it difficult to get a Business Loan?
Without an established credit history and low credit score, securing a Business Loan can be a bit challenging, specifically for small businesses and entrepreneurs. Assessment of factors like the borrower’s creditworthiness, business financials, business plans, and risk involved plays a crucial role as well. So, to get a Business Loan smoothly, borrowers must meet all the criteria.
