Getting a business loan from banks or NBFCs is an easy task today. However, the financial institution would expect you to fulfil the eligibility criteria and submit the necessary documents, before sanctioning the loan. The loan amount and tenure shall also depend on your financial and personal profile. Thus, it is important to understand what you would need to take a line of credit for your company.So, are you aware of the business
- Business Plan
Commercial loan applications will necessitate you to provide a strong business plan document. Even though the business plan is short, it must be convincing to the bank. The financial institution must be able to gauge the standard summary of the organization, marketing and management strategies, market, achievements, team, financials, and product.
You may even have to share information on loan covenants, i.e. the company agreeing to keep few ratios, within certain specified limits. The ratio can be: debt to equity, current ratio, quick ratio etc. If the financials fall below the specified mark in the future, then the funder can technically recognize it as default on the loan.
- Exact Loan Amount Estimate
The loan amount you require is very essential and must be mentioned in the loan application. There must be a mention of how you will utilize this amount. In case you wish to use the fund as working capital, purchase of a new machinery, payment towards a new project, etc, the purpose of the loan must be mentioned, along with how much you would require as loan. Do not ask more than you could be eligible for, as it may lead to rejection of the loan application, because you will only receive the amount that you are eligible for in the end.
- Personal and Company Credit Report
Lenders will obtain the personal credit report of the applicant. But to be sure, you must check your credit score and report before the banks accessing the same. Make sure you have corrected any errors or inaccuracies (if any) in the report. A faulty credit report can deprive you of the business loan. You will have to furnish the business credit report as well. A credit report of the company will signify its creditworthiness, which will help the funder to take the lending decision.
- Loan Details
When applying for a loan for business, there are few things you need to study, this includes the interest rate, loan tenure, other fee and charges (processing fee, late payment charges, cheque bounce charges, pre-payment charges etc), and terms and conditions. Each bank will have some distinction in its terms and conditions, charges, etc, compared to its counterparts.
You must compare all the options from top banks and NBFCs before choosing the right option for your needs. Basically, the suitable lender would be the one, who can offer you the loan amount you want, and whose eligibility criteria you meet.
- Financial Details of the Company
You will have to produce past and current debts incurred on the company, details of investment accounts, bank accounts, tax returns, credit card accounts, payment history, sales history, complete contact information, and other financial data, which gives an idea of the organization’s financial condition. As per the criteria of the banks, you will have to meet the minimum profit and revenue benchmark for the year.
The balance sheet, business assets, capital, liabilities, latest balance sheet are the most important. Profit and loss statements of the last three years are usually demanded. These statements should be audited by a CA. For a company that has multiple owners or partnerships, the lending institute will want financial statements from the owners and those with significant shares in the organization.
- Legal Documents
As per the business loan requirements, the lender can ask you to submit few legal documents. Thus, before applying for the loan, make sure you are prepared with business registration details and its papers, articles of incorporation, company licenses, commercial leases in case you have third parties, franchise agreements, etc.
Today, you can apply for an unsecured business loan. However, many a times the lending institute can ask for a collateral, especially if the loan is for a start-up with minimum vintage. Thus, the company must have few hard assets that can be pledged as security for the loan, if the situation demands. For instance, to get an inventory loan, the lender will accept a percentage of the inventory, and review it to understand the same is not obsolete, after which, it shall be considered as collateral.
- Insurance Details
Banks wish to reduce its risk of lending, thus they can ask newer businesses to produce insurance against the company, or insurance against the death of the founding or key members. The loan agreement can direct the insurance claim payment against death of key members or against harm to the company to be payable to the bank first, so that the loan outstanding can be repaid.
By considering the above-mentioned business loan essentials, you can apply for the loan with any bank or NBFC of choice. These days it is possible to drop a loan application online, which reduces the burden of paperwork, and time, effort invested in searching and applying for the funds. If you plan to apply offline, then make sure you know the branch timings before giving a visit to the bank. You will have to go with all the documents needed, including identity proof, address proof, and other necessary.