Must to Know Facts to Get a Small Business Loan

Introduction

Irrespective of whether you are a newcomer or a veteran, if you run a business, you understand the significance of capital pretty well. Due to the low turnover and seasonal nature of the small businesses, lenders often reserve the best deals for big players. However, much to the delight of small business owners, the Small Business Loans (SBL) are designed by financial institutions keeping players like them in mind. These short-term loans can help the small and medium enterprises (SMEs) to expand their operations, purchase inventory, hire staff, maintain cash flow, pay salaries, etc.

Advantages of Small Business Loans

• Easy Availability:

Gone are the days when lenders used to deny loans to business owners of small and new enterprises. Today, they see the potential of their growth. Many financial institutions are designing and offering loans according to their business needs making it easier for young entrepreneurs to avail such loans.

• Quick Process:

Small business owners have an urgent requirement of funds and cannot afford to wait for long. Therefore, unlike the conventional long-term loans that take days in putting together the paperwork and scheduling meetings, lenders are swifter in loan disbursal in case of small business loans. One can simply apply online and thanks to an easy application and verification process, the applicant gets the capital in a few hours.

• Flexibility:

Small business loans can be customised according to the comfort of the individual borrower. It provides flexibility in repayment terms, varying interest rates, and even repayment options. Many lenders also do not levy any fees or penalty on prepayment.

• Convenient Repayment:

As mentioned above, flexibility is a major aspect of such loans. Especially, when it comes to the repayment plan, an applicant wants a scheme where he/she does not feel the burden of the debt. Therefore, small business loans allow borrowers to choose a repayment scheme, which usually ranges from 3 months to 18 months according to the convenience of the size of the EMI he/she can pay. However, remember that a longer repayment period may give you the luxury of paying smaller EMIs, but you also end up paying more in terms of interest amount. So, choose wisely.

• Tax Benefits:

Small business loans are also popular because they allow you to save some money on tax. Since a major chunk of the profit generated goes in paying the interest, some section of the IT Act provides a tax rebate to such business owners.

Key Points That Will Help You Get a Small Business Loan (SBL)

1. Types of Small Business Loans:

There are different types of loans in this category that one can opt. For example, if you have an asset to put as collateral, you can opt for a secured loan that brings down the interest rate. Similarly, there are loans specifically meant for a particular purpose like the working capital loan that helps you to manage daily operations. The loans also differ depending on amount disbursal, for example, a line of credit allows to take out only a part of the loan amount sanctioned. It’s advisable to study these different types and pick the one that suits your needs the best.  

2. Research on Available Lenders:

Always go for a lender with a past record of providing financing solutions to small businesses. Lenders with a thorough understanding of business goals, requirements, and compulsions along with the ability to access financial situations can prove to be a long-term partner.

3. Every Lender’s Loan Qualification Criteria is Different:

Different lenders have different conditions of eligibility. Some may put stress on the credit score while others may only consider profit and loss statements. So, do not lose heart on being rejected by one lender.

4. Be Prepared with Financial and Legal Documents:

Since it is a fast process, keep your documents ready to avoid any delays. These documents will include proof of identity, age, nationality, and residential proofs like Aadhaar, Voter ID card, PAN card, Passport, and Driving License. You need to show registration papers of your firm, various work permits/licenses, profit-loss statements, IT returns, balance sheets of the company, personal and business credit score along with KYC details of partners and board members.

5. Draft a Full Proof Business Loan Application:

Those who are able to show a detailed business plan are more likely to get their loan applications accepted. Don’t present broad numbers; instead, give specifics to assure lenders that the business will have enough profit and cash flow to settle the debt on time. Explain the anticipated costs of operation, the USP of the product, the target group, the marketing strategy, etc. along with future projections.

Conclusion

Even though there are plenty of lenders offering Small Business Loans, getting them requires careful research and preparation. To reap the benefits of such loans, the business owner must research about the types of loans, eligibility criteria, documents required, and other terms and conditions. Applicants must do their proper homework before applying, learn from previous rejection, and correct those errors. Once approved, these loans will get you the capital funding that can take your business to greater heights. 

Know more about SME & Commercial Loans.