How Easy Is It To Get A Small Business Loan?

How Easy Is It To Get A Small Business Loan?

Small businesses worldwide contribute significantly to a country’s GDP and help generate employment. Yet, for years they have not received the due credit or impetus from larger established enterprises, financial institutions or the government. In emerging economies such as India, small businesses contribute up to 40% of the GDP. 

Owing to their indispensable nature and contribution to a country’s growth, their accessibility to funds has risen recently. This has been due to the government initiatives providing much-needed financial motivation and encouragement regarding loan subsidies and small business lending schemes. The second reason is the advancement in technologically superior lending institutions and FinTechs that have made the lending process smooth and hassle-free. 

Getting a Small Business Loan in India is no longer a painful process. With a bit of research and documentation in place, the chances of getting a Business Loan are very high. A business can increase their chances of loan approval by understanding their business’s requirements and comparing lenders that offer a loan best suited to their needs.

New-age lenders have made it super easy for small businesses to obtain loans. These collateral-free Business Loans in India are highly customisable as well. Lenders offer customised repayment (EMI) and flexible down payment options. After evaluating all supporting documents, the Business Loan interest rate depends on numerous factors, such as the metrics specified in your application, like turnover and business health.

Aspiring entrepreneurs can seek small Business Loans in India from numerous alternative and traditional lenders. While ambition and having a fantastic idea are excellent, surviving without the proper funding isn’t easy. Small Business Loans help the business grow in numerous ways. They can invest in assets, fund new research and development, expand into new product lines and territories, augment sales and marketing efforts, invest in human resources, meet working capital needs and much more.

It is effortless to get a small Business Loan if you are clear about the following: 

Understanding the various types of small Business Loans based on your business requirement 

First and foremost, start by understanding your business requirements. What exactly do you need the loan for? Based on the requirement, numerous types of small Business Loans are available. The tenure of the loan and its terms and conditions vary based on the type of loan you opt for. There are: 

  • Term Loans
  • Working Capital Loan 
  • Loan Against Property for Business
  • Invoice Financing
  • Equipment Financing
  • Business Loans for Women
  • Overdraft
  • Merchant Cash Advance 
  • Business Credit Card

Knowing your options is vital when you need a small Business Loan. 

Reviewing your financials to determine whether you are eligible for a Small Business Loan

Each small Business Loan will have its specific eligibility criteria. Some require business continuity for a particular period, an inevitable turnover, operating history, credit score, female representation, age of proprietors, etc. These credentials are most certainly quite fluid and flexible when it comes to online lenders. But knowing the overall financial position of your business is critical, especially when you are applying for a business loan without collateral

Make sure of the following: 

  • The business credit scores as well as personal credit scores of the business owners
  • The balance sheet should be up to date
  • How much time have you spent in the business?
  • How many assets have you invested in?
  • Ongoing loans and outstanding payments

Vital financial documents, such as cash flow and profit and loss statements, should be updated and readily available.

An overview of the overall cash flows as well as business expenses 

This not only determines the small business’s creditworthiness but assesses the ability to pay the loan back. You need to anticipate how lenders will view your risk and credit profile and ensure it is impeccable to receive approval. 

Arrange for the business and financial statements and have critical information in place

The higher the loan amount, the more carefully the lender scrutinises your financial statements and accounting records. Make sure you have your balance sheet, profit and loss statements, and cash flow statements in order and scanned copies handy to upload when applying online. Before approving a loan, the lenders analyse specific financial parameters, such as EBITDA, cash flow, debt-to-equity ratio, gross margin, accounts payable, accounts receivable, and more. 

Apart from collecting documents, ensure you have gathered all the details on the loan application form. Since it is a Business Loan, you will require detailed information, such as: 

  • Name of business (including any DBAs)
  • ITR (past years as well)
  • List of owners and their background
  • Legal structure 
  • Financial statements for the past two to three years 
  • Projected financial statements 
  • Amount of loan requested
  • Potential collateral available for the loan
  • Financial statements of the business owners
  • Business account statements

These days a lot of lenders do not require additional collateral or guarantors to have the SME loan application approved. They only go by overall business health and income generated, making it all the more critical to arrange the financial documents and ensure they are updated without errors.

Exhaustively reading the Terms and conditions.

Finally, read the terms and conditions of the small Business Loan agreement. On the face of it, everything may appear great, but many hidden charges are associated with a small Business Loan. Make sure to exhaustively know the costs associated with delayed payments, advance payments, foreclosure, processing fees, late charges, balance loan transfer, etc. 

When you review the loan agreement’s T&C, pay attention to the annual percentage rate (APR), interest rate, the EMI repayment schedule, and the loan tenure. This will give you an idea of the time required to pay the loan off and the actual cost of borrowing when you factor in the interest and fees. In the future, your improved cash flows may allow you to repay the loan before time, but if there is a foreclosure charge or prepayment penalty, it may be unfavourable. So being clear on all these aspects is a must. 

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