Business loan

How To Avail SME Business Loans For Growing Business?

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Loans that address the financial requirements of Small and Medium Enterprise are SME business loans. SME and MSME sectors provide substantial employment opportunities, primarily through industrialisation in rural and backward areas. It is also making important contributions to the nation’s GDP.

Generally SME loan are available under government schemes in conjunction with many banks and NBFCs. You can apply online by filling an online application form and submitting necessary documents, like:

  1. Identity Proof: Aadhaar Card, Driving License, PAN Card, Passport, Voter’s ID, etc.
  2. Address Proof: Aadhar Card, Driving License, Passport, Voter’s ID, etc.
  3. Proof of Business: Business Entity Proof, Incorporation Certificate, Partnership Deed, Shops and Establishment Certificate, etc.
  4. PAN Card: of the business entity and all partners/promotors.
  5. Financials documents: Audited financial statements, Balance Sheet, Profit and loss statement, Tax audit reports and VAT returns, etc., for the last three years.
  6. Bank Statements: For the previous six months.

To avail SME business loan, you should be a proprietor, a self-employed, or a partnership or private limited company. You should be in the age group of 21 to 65 years, the minimum annual income of your business should be Rs. 1.5 lakhs and you should be in this business for at least two years.

Additional Read: Startup Loans v/s SME Loans- Types of Business Loan

Important Things Financial Institutions Ask if You Apply for a Business Loan

Securing funds through business loans continues to be the standard choice for businesses. With the advent of online applications, things have become easy “ business loan apply” options online.

But there are several things which everyone have to check before applying for business loan. Because every financial institutions have different requirements. But some of the common things are mentioned below which is surely asked by financial platform.
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Crucial flags Considered by the Lender

  1. Collateral

Financial institutions scrutinise the collateral submitted by applicants to reduce the risk of default. 

  1. Business plan 

Most of the lenders request applicants to submit their business plan with a summary that includes details regarding the team, financials, product and company.

  1. Business financial statements

These audited financial statements should include both personal and business details of any debts in the past, credit card statements, and investment details.

  1. Details on accounts payable and receivable

Lenders would also necessitate reference details along with credit and sale history.

  1. Insurance details

To ensure there is no scope for default, lenders might request for the insurance details

  1. ITR and GST returns (of the past six months or one year.)

Conclusion

After the Startup India campaign in 2015, business funding schemes have been on the rise. Applicants can choose the best plan suited for them using a business EMI calculator. With the right lender and authentic data submission by applicants, availing a business loan is far from complicated.

Must Read: Stages to Get a Business Loan That you Must Know

Common Mistakes to Avoid When Applying for a Business Loan

Business loans are usually sanctioned for starting a new business, for buying machinery and equipment and for business expansion and related activities. A business loan helps to meet the working capital requirements of an entrepreneur or an enterprise which aims to make an additional investment to grow its business.   

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Your business loan application can be denied due to some common mistakes and disqualify you from securing a business loan.

  • First and foremost, you should provide a concrete and detailed business plan to the bank or any other financial institution from which you are seeking a business loan. The lender thoroughly scrutinizes your business plan, and if he is not convinced with your presentation, he is likely to turn down your business loan application. This stands for online business loan applications also.
  • Some lenders require collateral security for a business loan in the form of residential or commercial property, stocks, insurance policies, commercial vehicles, etc. and lack of collateral may result in loan rejection.
  • You need to have a good credit score while applying for a business loan, and if you have defaulted on any loan payments in the past, the banks or private lenders are hesitant to sanction a business loan.
  • Another common mistake that borrowers make while applying for a business loan is not reading the exhaustive loan agreement documents before signing them. One must go through the documents carefully as there are hidden charges and clauses mentioned which should not be ignored.

    Must Read: Things To Remember When Getting A Business Loan

Here’s Different Types of Business Loans Available in India

Business loans are required for starting a new business, expanding an existing business, upgrade plants and machines, maintain capitals or to manage the cash crunch. Several bank and NBFCs offer business loans in India for finance your business expanses for small and medium enterprises if the borrower meets the eligibility criteria and has a good credit score.

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Different types of business loans offered in India:

  • Professional Business Loans 

Professional business loans are sanctioned to professionals like doctors, chartered accountants, and lawyers who have a good credit history. It is at the discretion of the bank and NBFC how much loan it wants to extend to such borrowers and in many cases, some kind of collateral security is taken in the form of property, government bonds, life insurance policies, etc. The professional business loans usually have tenure of 5-7 years.

  • Overdraft loans

Overdraft loans are normally sanctioned by pledging fixed deposits of the bank and NBFC. Depending upon the credit history of the borrower, cash flows, tenure of bank and NBFCing relationship and the repayment history of the business or individual promoter, the bank and NBFC approves a certain fixed overdraft limit. Based on the limit, the overdraft amount can be utilized and interest is charged by the bank and NBFC only on the utilized amount. This loan can be utilized in any manner as long as the principal and the interest are being repaid on time.

  • Working capital loan 

In a working capital loan, the bank and NBFCs sets a limit for the business to take a loan and the amount can be utilized in a specific purpose only, i.e. the working of the business and cannot be utilized in any other manner. This type of loan is sanctioned against the defined purpose and the plan of the business.

There are multiple other options when it comes to business loans. These vary from one institution to another, it would be really helpful if you talk to a few of them before deciding upon a particular one to get the arrangement according to your parameters.  

Additional Read: What Are The Types Of SME Loans Available In India?

What is a Business Loan & Who can Avail it?

Do you have an idea but not the funds? Looking to expand your existing retail store but short of money? Then there is a tailor-made solution for you. A business loan can help in uplifting your business while providing better liquidity for your business needs at the same time.

A business loan can be the only step separating you from your goal. Technology has made availing and planning a business loan much easier. With the help of a business loan calculator, you can calculate monthly instalments depending on the amount and tenure.

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Who can avail Business Loan?

  • Salaried and Self-employed professionals

Salaried self-employed professionals like Freelancers, Chartered Accountants, Company Secretaries, etc. fall into this category.

  • Private and Proprietorship firms
  • Private limited companies
  • Enterprises-the minimum turnover 10 lakhs or minimal annual income of 2 lakhs per annum)
  • Individuals over the age of 22.

Final Thought

Before applying for a business loan, it is a good practice to check your requirements. Make a list of profit and expenditures, thorough analysis about loans is advisable and try not to put all of your eggs in one basket. Pay the loan amount as soon as possible. Keep a track of the market and refinance, and finally maintain a good credit score.

Must Read: Important Things You Must Have While Applying for a Business Loan

Difference Between Business & Personal Loan

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Loans are a great way to get cash liquidity in times of need. They come in handy when in need of urgent capital, may it be for your business or any other personal reason. Borrowers usually get perplexed about whether to go for a business or a personal loan. Both are avail for different purposes. yet people get confused while opting for it.

Business Loan is apply when you require a large amount of money for funding your business. The business may be  partnership firms, pvt. Ltd, private etc.

Personal loans are unsecured loans avail by individual to fulfil their personal needs. It may be for education, wedding, buying expensive gadgets, travel, holiday, medical emergency and much more.

Hence, before opting for the loan analyse your situation wisely and go for the option that best suits your needs.

Must Read: How to Expand Your Small Scale Business into Large one?