A Business Loan is a financial help required by an individual/a company to begin a new venture or expand its business. An individual/company can avail either a secured loan which is obtained against collateral or an unsecured business loan which is a loan without collateral.
Collateral is basically an asset against which the loan is borrowed from the financial lender.
These days, financial lenders have created it straightforward to obtain an instant business loan by making the process easy, quick, and additionally reducing the necessity of the business loan documents.
How to apply for a business loan?
Below stated are the few important points on how to apply for a business loan and business loan documents required for the same.
A good credit score
This is the compulsory requirement to avail for almost all the business loans available in the market.
A credit score is nothing however the credit history of the applicant as to how much credit is taken by the applicant, its repayment history, etc. It provides the financial lenders with a hint on the loan repayment capacity of the applicant. And consequently, the financial lenders decide on the amount of the loan that can be granted to the applicant and also the interest rate.
High the credit score, the higher would be the loan amount being granted against low-interest rate.
Detailed, well-designed & well-documented business plan
A business plan is a roadmap for a business, wherein a business idea is detailed and the realistic ways in which the goals of the business that can be achieved in the designed time frame is well documented and presented.
A well-detailed business plan is very much necessary for a financial lender to check the feasibility of the business idea and also to check if it’s achievable. The business forecast suggested should be sustainable.
Steady income and cash flow
This is an important factor to avail business loan for an already existing business to expand their existing business.
Income generated by the company helps a financial lender evaluate the nature of the business. Income directly represents the performance of a business in the market and also helps the financial lender evaluate the sustainability of the business.
Apart from income, the expenses of the business also are taken a due note by the financial lenders because the expenses incurred by the business helps determine the profitability of the business.
Age of the business
In the case of unsecured business loans, a financial lender has to rely more on the age of the business. Age of the business basically means since how long the business has been in existence in the market and its performance.
Business age is essential to determine the potential of a company to repay the loans, the time and the sustainability of the business. This is determined by the bank statement copy.
An applicant has got to pledge collateral as a security to the financial lender to avail & obtain the business loan for the period of the business loan. Collateral is required in case of secured loans.
If the applicant defaults on the payment, then the financial lender can seize the collateral, sell it and find back its losses. Collateral is any tangible asset like property, machinery, inventory, etc.
Business is essentially a risky affair and thus, a financial lender is incredibly careful while checking and evaluating all the business loan documents presented by the applicant.
Frequently Asked Questions
The basic business loan documents required are identity proof, address proof, business plan, business registration copy, rent agreement copy, bank statement copy, ITR, current year performance report, projected growth rate, passport size photographs, etc.
A credit score of 500 and above is required to apply for a business loan. Higher the credit score (850 and above), higher would be the business loan that can be availed and also it would be available as low-interest rates.
EMI which means the equated monthly instalment that is payable to the financial lender can be calculated by simply using a business loan.
A business loan is required by the companies to fund its initial capital investment, working capital and day-to-day expenses / operational expenses.
Instant business loan has been launched for small businesses wherein the business loan documents required are the bare minimum, loan disbursed time is less and the overall process is easy and quick.