Many financial institutions offer small business loans. Such a fund can go a long way in helping an entrepreneur to grow his/her business, develop and expand the business, researches can be funded, people can be hired, boost marketing and sales, and much more. However, before applying for a small business loan one should equip themselves with few points so that they are well prepared. One important factor that goes a long way in getting the approval of the loan depends on how efficiently and effectively one can present his/herself, the business, and the financial need of the business. Here are 10 things a person should know and prepare for before applying for a small business loan.
There are several types of small business loans available in the market, from the traditional bank loans to online loans offered by various private institutions that are approved within minutes. Decide what kind of loan you want, what is their rate of interest and other details.
When you are applying for the loan you have to be succinct with your answer as to what purpose the loan money you will use. Without a proper reply, you might not get sanctioned for the loan no matter how small the amount is.
With the knowledge of what you will use the loan amount for you should know how much you would require for that purpose. It is advised that quote the amount as close as possible to your actual requirement. Do make sure the loan amount covers the expenses that you want the money for.
Before you apply for a small business loan, make a realistic timeframe on when you can repay the loan amount. This will enable you to determine the amount of loan you can afford and the line of credit you should go for.
Often loan services charge penalties for early repayment but they are not forthcoming about it. So when you are applying for the loan, ask about the payment plans, the prepayment penalties, and how you can avoid them.
You take the loan with the full intention of repaying it, but sometimes there are instances in business outside your control that hinders you from repaying the loan. Talk with your lender about having a plan B in such a case.
Credit Information Bureau (India) Limited (CIBIL) score is one of the most important factors and you need to have a high CIBIL score to be eligible for any kind of loan, even a small business loan. Before applying for the loan check your CIBIL score and you can get the score for free at cibil.com
Not many financial lending institutes would want to have your business history or the understanding of your expertise in the industry but there might be some. Some lenders might want to gauge the understanding of your business to put a context to your loan application. So it is always better to outline the history of your business with your resume while applying for the loan.
Have a proper structure of your business laid out in a paper. The plan should include the uniqueness of your business, how it is filling a market gap in your sector, and what the projected growth of your business for the future. When applying for a small business loan have this document in hand and give it to your lenders with the application, it will boost your case.
It is of utmost importance that when you are doing your small business loan application you should have all the required documents. So give yourself to compile, and recheck the documents. You will most often find a checklist with the documents that you need to provide while applying for the loan, go through the list carefully, and attach them.
There are many lenders available in the market for providing business loans. Also, there are countless choices that are available, which are tailored to suit a particular type of small business loan. Such a tailor-made loan might help you in providing a good financial backup for your business. But to get the approval it is best you do your homework and follow these tips. It will increase the chances of getting the loan.