As a small business owner, you may need funding from time to time to continue your business operations. And unlike a few decades ago, availing of business funds has become a lot easier now.
The Indian Government has launched several credit schemes to helpmicro, small, and medium-sized enterprises (MSMEs) in India grow and flourish.Many banks and non-banking financial corporations (NBFCs) have also put their hands up to help MSMEs by providing collateral-free small business loans to them.
You can avail of a small business loan and use the funding for various purposes, such as purchasing raw materials for your business, expanding your business premises, paying wages to your staff, etc. However, while applying for a small business loan, you should be as prepared as possible to avoid the chances of rejection by the lender.
You should prepare yourself for the questions that a lender may ask you when you apply for a small business loan with it. While exact questions may vary from one lender to another, you can prepare for some common questions that can be asked on your business loan application, such as:
Among other factors, lenders determine business loan eligibility based on the applicant's business plan. Hence, they can ask you about your business plan. If you haven’t yet started your business, you need to have a solid business plan to convince the lender to provide a business loan.
If you already have a business, you need to convey your plans to expand it. It would help to highlight your contingency measures to make your business plan look more assuring. To create a concrete business plan, you can consider various social, economic, and political factors.
The lender may also be interested in the administrative details of your business. This may include details such as whether you're the sole proprietor of your business or there are multiple partners in it, how many employees are there in your business, the positions of various essential persons in your business organisation, etc.
Providing these details to a lender can help them verify your business credentials. It can also help in preventing identity fraud and unauthorised access to capital.
Different lending institutions may have other eligibility criteria for providing business loans. Some of them look at the business experience of the business owner. Usually, lenders demand a minimum business experience of three to five years to grant them a business loan.
Therefore, they may ask you how long you have been in your business. Needless to say, someone who has been in a company for a long time will have better chances of getting a business loan than someone who has just started a business.
Every business is based on selling. You may be selling a single product or a range of products, or you may be selling your services to your clients. This question is crucial for the lenders as it can help them identify the nature of your business and decide whether it would be fitting to provide you with a business loan or not.
Some lenders may also ask for industry-based information to make a more informed lending decision. Some lenders also provide industry-specific business loans, and hence, this question becomes much more important to them.
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Now comes the most crucial question. This question may be obvious and very straightforward, but many business owners find it difficult to answer it. Lenders want a detailed answer to this question and not just the amount. You should be able to provide a correct estimation of the funds you may require. This will reflect fiscal awareness and entrepreneurial maturity on your part. You can prepare a presentation showing the break-up of the money you may need at different stages of your business.
After you've told the lender how much money you need for your business, it may also be helpful to know how you plan to use this money. The answer to this question may help a lender determine whether a business owner actually needs the money or is just trying to shoot the arrows in the dark.
If you want the lender to approve your business loan application, you should prepare well for this question. You must be able to tell how you are planning to use every rupee of your loan amount and justify your reasons for asking for that amount from the lender.
This is another fundamental question the lender may ask you while evaluating your business loan application. The answer to this question may significantly influence the lender's decision to approve or disapprove your loan application.
The lender may ask you about your credit score, existing debts, credit utilisation ratio, age of your first credit, etc. Positive answers to these questions can reflect your business's sound financial health and creditworthiness.
A lender is worried the most about the repayment of a loan while providing it. Hence, your job is to assure them about the repayment while applying for a business loan. You should not just say that I will repay the loans from my business profits. While this is obvious, you should also state what you will do if you don’t succeed in your plans.
The chances of your business loan application approval rest on how well you handle the above questions from your lender. Your answers should be detailed, innovative, and specific. The more you read, research, prepare, and plan, the better your chances of getting a small business loan are.
With Poonawalla Fincorp, you can get Business Loans at competitive interest rates and easy eligibility criteria. Visit our website to read more about our loan offerings and apply for them online.
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