A business loan is helpful when it comes to expanding your business or dealing with the existing set of challenges. Depending on your objective and requirements, you can apply for a business loan. It can be used to manage cash flow, expand your physical space, hire new staff, or buy new equipment or inventory. The best part about a business loan is that it is collateral-free i.e., you do not need to submit any asset as collateral with the lender to get a business loan. You can get a business loan based on the credit record and credit profile of the business and founder or directors.
A business loan is one of the most preferred forms of loan to expand a business. It can be used for a variety of reasons in the business and there is no restriction on the end-use of the loan amount. However, to be clear about how to get a business loan, it is important to understand the business loan application process and the kind of information that is required to be submitted with the lender. Once you are clear about the business loan application process, you will be able to complete formalities much faster.
Here is all you need to know about a business loan application. You can consider this the ultimate checklist for a business loan application process:
1. Business Loan Application Form
The first step in the business loan application starts with filling up the business loan application form. There could be an online mode or offline mode for filling up the business loan application form. For instance, Poonawalla Fincorp offers a completely online process for your business loan application including the business application form. Whatever may be the mode, the kind of information a lender may require would be similar. The basic information you would need to fill in your business loan application form is as follows:
You should exercise care while filling up the business loan application as it will be a formal record for your application with the lender. It is important to ensure that you submit correct and updated information to the lender.
2. Business Loan Documents Checklist: Requirements for a business loan
The business loan application process would also require you to submit some documents related to the business and the founders or directors of the business. It is suggested that you go through the documents listed below and create a separate folder in hard copy or soft copy, depending on the requirements of the lender. In case the lender expects you to submit the digital copies of the following documents, you can collect them in a folder on your computer or if you are expected to submit hard copies, you can take printouts of the mentioned documents. Here are the documents that may be required for a business loan application:
2.1 Business loan: Borrower Information Form
You can start with collecting the borrower information form and fill it with caution. As the name suggests, the lender would expect you to fill in information about the borrower in this step. The information will include name, address, phone number, email, and any other personal information that the lender may deem fit. This form may also ask you to fill up information like organization details, goals of the firm along with its vision and mission. This is basic information that may be required with any lender for processing your business loan application.
2.2 Background and Financial Information
The business loan application process would also require you to disclose your background and financial information. Anyone who is a founder, director, guarantor, or authorized person in a small business will need to share this information with the lender at the time of filing the business loan application.
Always keep in mind that since a business loan is mostly a collateral-free loan and is extended by the lender based on the reputation of the business and the management, the lender would consider your credit score at the time of loan processing. In addition, the lender would also have a look at the kind of assets that are owned by the management and the business to assess the net worth of the borrower.
2.3 Loan History
Any lender who is planning to extend you a business loan will also take into consideration the loan history. This would include the loan history of the business which would include any loan that you have taken in the past, your repayment record, and any request for a loan that you may have submitted in the past. A similar assessment is also done for the founders and directors of the business. This helps in assessing your history with lenders and figuring out if it is worthy to extend you a business loan for the lender.
2.4 Business Registration Proof
As we are discussing a business loan, it is important to consider that a business loan is different from a personal loan. In the case of a business loan, a lender is dealing with a business while in a personal loan; a lender is dealing with an individual. Therefore, the lender needs to check your business registration proof. Therefore, as part of the business loan application process, you are expected to submit your business registration proof. Depending on the nature of the business it can be a proprietorship, partnership, private limited firm, public limited company, or a limited liability company. You are expected to submit the business registration proof to the lender as the legalities in the case of a business are different as compared to an individual.
2.5 Business Financials
This is again a very important step in the business loan application process. You are required to share the financials of the business with the lender. This helps in explaining the financial position of the business including the revenue and profits. Lenders usually ask for the last 2 to 3 year financials of the firm to assess the current state of affairs. Documents like balance sheet, profit and loss account, etc are required. You can ask your Chartered Account to share copies with you for the mentioned period.
2.6 ITR Records
In addition to the financials of the business, the lender will also ask for the income tax records of the business. Typically, the last 3 years of ITR records are required by the lenders. You can again ask your CA to help you with copies of the latest ITR copies that will be required as part of your business loan application.
2.7 Partner Resumes
Each partner of the business would be required to submit a document known as a personal resume. This is somewhat different from the standard resumes that are seen for job applications as this is specially tailored for the business loan application.
Under this step, the resume would include information like professional history, education background, business background, achievements, goals, and vision for the company. This would be a great point to showcase your business acumen and your ability to run a successful business.
2.8 Business Overview
You are also required to share a business overview which is aimed to explain the history of the business, plans, and objectives of the business. This is a good place to showcase how your business stands out in the market and has a better chance of being successful.
2.9 Lease Agreement if Any
In case your business needs a physical location to operate, you would need to submit a copy of the lease agreements that you have with the lender. This will help the lender in assessing how these lease agreements are structured. This may or may not apply to you depending on the nature of your business. For instance, if you are running an internet-based business that does not require you to store and ship goods, you would not require a physical space to operate your business.
2.10 Accounts Receivable and Accounts Payable aging
These are very important reports when it comes to a business loan application. These reports define how well your customers are paying you, whether they are paying on time or there is a regular delay that may cause debt problems in the future. Similarly, the account payable aging report shows how well you are utilizing your working capital in a business. It is usual in a business environment to offer goods or services on credit, especially in a business-to-business ecosystem. Therefore, a lender may need to assess your accounts payable and accounts receivable aging to understand how your business may perform in tough situations.
2.11 Business’ Bank Statement
A lender would usually ask for a bank statement of the past 1 year for both the business and management. This is done to verify the financial details submitted in the earlier steps and check the buying behavior of the borrowers. You can simply request your bank to help you with a bank statement for the past 12 months.
3. How to Choose the Right Business Loan Lender
After you have been able to complete the required steps and have all the paperwork ready with you, it is now time to select the right lender. You can keep in mind the following things when it comes to selecting the right lender:
- Interest rate: The interest rate being charged by several lenders should be taken into account as you are looking for the right lender for your requirements. However, it is suggested that you do not make it the only factor to decide your lender. There are several other factors which you should consider as well.
- Paperwork required: You should always check if the lender is asking for too many papers and is making the process cumbersome for you. You should opt for a lender that settles for minimal paperwork and offers an attractive interest rate.
- Eligibility criteria: This is one of the important things to consider. You should only consider a lender if you can get the required loan amount and are meeting the eligibility criteria of the lender. The eligibility criteria vary from lender to lender, and it is important to understand that there is no point in applying with a lender where you are not meeting the required eligibility criteria for business loanor not getting the required loan amount.
- Charges & service: Always assess a lender on the kind of additional charges that you may have to incur like prepayment charges, foreclosure charges, processing fees, etc. Also, it is important to check the kind of service record a lender has. You need to have a lender that offers minimal required charges for business loan along with best-in-class service.
4.Things to Check Before you apply for a Business Loan
It is important to check your credit score and credit history before applying for a business loan. This is true for both – your business and your personal account. In case you have had trouble in paying back loans in the past or your business has seen tough times financially, you should be forthcoming about explaining the scenario, how you dealt with it, and if you have settled the debts from that time.
In addition, you should be straightforward about the objectives of the business, your requirement for a business loan, and how you plan to utilize the funds. These points can be covered very well in the business overview document. The lender needs to have this information so that you can have a better understanding and are on the same page in terms of the business requirements.
This is your ultimate checklist for a business loan application. In case you are looking for a modern lender that allows you to submit online applications and offers quick approvals and disbursals with minimal documentation, you can always contact us at Poonawalla Fincorp. Here is some more information about our business loan process.
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