How to Get a Business Loan? [A Comprehensive Guide]

Getting a business loan means fueling your dream of entering the entrepreneur world in full swing. Every business needs funds to run the operations and diversify into the various services/products. Not everyone can start a business from their savings or by borrowing money from their network, but if you’re wondering how to get a business loan, this article can help.

Taking a loan is not burdening yourself with years of money to pay back, but it is what will rake in profits and allow you to fulfil many dreams without worrying about a consistent flow of cash. Paying back is easier when your profits are enhanced due to the sound use of the funds.

According to a survey of loans, India’s loan percentage rose by 6.70% in September 2021. That means more people are leaning towards taking out loans rather than struggling to accumulate enough funds for any project.

While a business loan is essential for businesses, many are still in the whirlwind of finding the right option or process to get this loan. The plethora of banks, the internet filled with the opinions of millions, and the never-ending queues at banks make it a tedious task for a prospect. Additionally, people also fail to qualify for loans because of a lack of knowledge about the formalities that need to be obliged with. If you are a business, you will inevitably get a business loan someday. This may be for reasons including scale-up, taxes, machinery, cash flow, etc. At that time this succinct guide on how to get a business loan will come in handy.

Steps to get a business loan

1. Evaluate your eligibility

Not everyone qualifies for a loan. There are some criteria that every large, small, or medium business needs to fulfil before a bank is ready to trust you and provide you with the desired amount. There are various factors that chime into these steps. These include:

• Credit score

A credit score reflects on your responsible character of paying loans, debts, or bills on time. Without a good score, your bank will hesitate in providing you with a loan. While assessing your score, lenders focus on both personal credit score and independent identity score as your business is also an extension of you.

A strong credit score that is above 700 or more builds your repertoire and implores the bank to give you the loan because of your impeccable and timely payment history. You can find your credit report at the major credit agencies, namely, TransUnion CIBIL, Equifax, Experian, and CRIF High Mark.

• Collateral

Collateral is the security that a bank sometimes requires a business to put up so that they ensure the repayment of the loan. While there are schemes out there for zero collateral loans, many banks, lenders, credit unions still require some kind of collateral from a business. These can include stocks, bonds, machinery, inventory, etc.

• Minimum Revenue

If you do not earn enough to pay the instalments, the whole purpose of acquiring a loan gets defeated. In India, you should have an annual net income of Rs.1,50,000 for a loan of Rs.30,000 to Rs.15,00,000. While a loan above these amounts requires a net income of Rs.15,00,000 yearly.

2. Decide the type of loan you need

A business loan expands far and wide in scope because of the varied needs of different intents. The nature of the business is also a major factor in deciding the type of loan that is needed. For example, your needs can be capital directed, day-to-day operations, or diversifying needs. Let’s take a look at the 8 types of business loans that you can take out:

• Working capital loan- This loan is meant to meet the daily requirements of the business.
• Equipment finance - This loan provides funds to business owners for purchasing machinery and equipment which are an integrated part of the operations.
• Overdraft loan- This loan allows you to withdraw cash from your account even when the current balance is zero. You need an unwavering credit history to acquire this loan.
• Govt. Schemes- From time to time, the government introduces new loan schemes to encourage the emergence of new businesses and boost the progress of current ones. Usually, there are special criteria for this, and you need to fulfil them to acquire this loan.
• Bill discounting- This is where you can acquire the funds in advance with discounts.
• Term loan- Term loans require you to pay back the amounts at definite intervals. This loan can be for the short term and long term depending upon the amount and the size of your business.
• Letter of credit- If your business involves dealing in international trade. Where you get the guarantee of funds to aid your trading business.
• Point of sale loans- POS loans provide you with the option to make a purchase that you do not have the funds for and can easily pay back in instalments.

3. Gather all the requisite documents

Once you have assessed your needs, the last step would be to apply for the loan. However, this is also the most complex step as missing even a single document can put a dent in your acceptance for the loan. Here are some documents you might need -

• A filled-out application with your passport size photographs.
• Personal and business credit score reports.
• Personal and business tax return documents.
• Identity proof, Driving license, PAN card, etc.
• The license of your business, GST number, revenue reports.
• Legal contracts (as applicable ).

Conclusion

Now that you are aware of the many formalities that come in the way of you and your loan, it is time to fill that application that has been lying on your desk for a long time. A business loan will boost up your revenue and profits while also fulfilling the various aspirations for your business.

Once your loan is approved, you need to ensure that every payment is made promptly and maintain your credit score lest it would reflect a negative reaction from your lender. With the evolving economic climate, innovation is running rampant, and to hold it still, you will need an influx of cash, and getting a business loan is the easiest and most reliable way.

Banks are more than happy to sanction loans to businesses because they also support the economic growth that will be triggered with a new business, hence creating prospects for both parties. It is time to achieve all the objectives of your enterprise with an injection of funds!

Stay updated with new business ideas & business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi & more!
Download OkCredit now & get rid of your bookkeeping hassles.
OkCredit is 100% Made in India.

FAQs

Q. What type of business is eligible for a business loan?

Ans. Businesses are of different types, and you can find an alternative for your business is small or a startup. Here are some types of businesses that qualify for loans.

• Partnership firms
• Sole proprietorship
• Societies
• Trusts
• Pvt. Ltd. companies
• Public limited companies
• Health centres

Q. How can I apply for a loan?

Ans. In this digital era, you can apply for your loan in various ways. You Can either visit the website of the bank and fill out a form, call the bank's number, or visit the branch and let the staff take you through the process.

Q. Can I also get a business loan without collateral?

Ans. Yes, you can also get a loan without collateral. However, you may still need to sign a personal guarantee or get a co-signer for your business loan.

Q. Are the interests on business loans fixed?

Ans. The interest rates for business loans can be fixed or floating depending upon the type of loan that you are applying for. Contact your bank to find out about the current rates in more detail.