By- Aakshit Rajput
Small business needs funding to grow. And securing funds for your business might seem like a big challenge. Well, that was the truth a few decades ago, but in current times, small business loans are one of the simplest financial tools available at your disposal. Thanks to several government initiatives to boost local business and innovative schemes from financial institutions, business loans are helping small businesses go global!
However, if you are a first-time applicant, getting approved for a small business loan can be challenging. Here are some of the points that will help you get approved for a small business loan immediately.
Check Your Credit Score
If you are applying for a small business loan for the first time, you should first review your credit score. Every financial institution has set a minimum credit score requirement. If you don't meet this requirement, then your loan application will not be processed. Applicants who have poor credit scores should first clear all their outstanding dues. In case you are a first-time loan applicant, try to take out a consumer durable loan and take the first step towards establishing your credit score.
Know Your Requirement
If are planning to apply for a small business loan, then you must have thought it through. How will you use the fund, what are expansion plans and how you will return the loan amount without straining your profits? Since small business loans are tailored to your needs, knowing what you need before you apply is critical. If you need funds for purchasing plant and machinery, your lender expects you to apply for a machinery loan. Similarly, if you want to cover operational expenses, the lender would expect to apply for a short-term unsecured small business loan or working capital loan. Remember that borrowing more than your requirement would deteriorate your financial health in the long run.
Research Lenders
When applying for a small business loan for the first time, you should first compare the interest rates and offers with different lending institutions. Compile a list of lenders whose interest rates are affordable. Now compare the numerous factors that lenders use when deciding the interest rate on a small business loan. Choose the financial institution that has the best deal for you. If you are having trouble comparing lenders, go to the website of any loan aggregator, and you will be able to make a smart decision.
Know the Document Requirements
If you are a first-time small business loan applicant and don't have any previous relationship with the lender, knowing the list of documents will make the process smooth. Your documents help a lending institution in credit appraisal. Some of the common documents that you will require while submitting your loan request application are:
Duly filled application form
Signature proof
Business continuity proof
Business financial statements such as balance sheet and P&L statement
Proof of income
Proof of office and residential address
Business owner identity proof
List of directors and their shareholding pattern
Review Eligibility Criteria
As a thumb rule, never apply for a small business loan with a lender whose qualifying standards do not meet your profile. Doing so will either result in rejection of your application, or the lending institution will charge you with a higher interest rate. As such, before initiating your loan application, review the lender's minimum qualifying conditions thoroughly.
Add Co-Applicant
Although a small business loan does not have any strict guidelines for loan approval, sometimes adding a co-applicant can make the approval process smoother. If you don't meet the minimum credit score or income requirements, adding a co-applicant or a guarantor to your application can help mask your flaws. When you apply for a small business loan with a co-applicant, it means that both of you are equally accountable for repaying the debt. In the case of a guarantor, if the borrower defaults on a loan, the guarantor may be held liable depending upon the small business loan terms and conditions.
Collateral
Even though a small business loan is an unsecured form of funding, putting up your valuable as collateral can help you in getting a loan, even if your credit score is ordinary. Check with your lender to see if accept collaterals. If they do, find out what kind of assets or securities they accept for loan processing. Providing collateral helps you in securing low-interest small business loans quickly and easily. The collaterals can be your car, bank savings deposits, investment accounts, land as well as property.
Business Plan
If you are a first-time business loan applicant, be ready with your business plan before raising a small business loan request with the lender. Have the future expansion plan, sales forecast, revenue forecast, all on paper. If the lender is satisfied with your business plan, they may easily approve your small business loan application.
Your Takeaway!
Now that you know all that you need to get approved for a small business loan as a first-time business loan applicant, take your pen and pad out and start noting the details. Why wait for tomorrow for your big business dreams to manifest!
Disclaimer: (This article is sponsored and includes some commercial links)