When you plan to start a new business or to expand an existing one, funds are always the critical consideration. A small business loan can be an answer to your problem. Most banks and NBFCs offer a small business loan for setting up a new business and to expand the existing one. The funds of business loans for the self-employed are utilizable for various types of purposes and activities.
Before you make an application for a small business loan, understand the following points clearly. These are:
- Purpose of Getting a Small Business Loan: It is one of the prime aspects which have to be clear about when you plan to get a small business loan. There can be many reasons, like:
- To set up your new business
- As a working capital
- Expansion of business
- Buffer during any unforeseen expenses during the initial stage of the business
Make a proposal that mentions the purpose of the loan and your business plan. A report of your financial status, indicating the funds available with you, is a pre-requisite.
- Check your Eligibility for the Loan
- When you are Launching a Startup
If you’re setting up a small business, you will not get funding in the name of your firm, as there may not be enough cash flow to support loan repayment. Hence, you will have to opt for borrowing from friends and family, business credit cards, crowdfunding, personal loans, etc. Most banks insist that borrowers be in business for at least a year before approving them for a loan.
- When your business is in its the Early Stages
If your business is in its initial years of operation, you still have fewer options available. There might be some lenders ready to give you funding, with high approval rates and quick disbursals, but they charge very high-interest rates.
- Established Business
An ongoing business firm has more options for availing business loans. Different lenders offer you different business loan interest rates in India. The actual price applicable to you depends upon the bank distributing the credit.
- Compare Loans and Select the One Best for you
While selecting from the available options, compare the rate of interest, processing fees, and loan repayment terms. Apart from these, the below-mentioned factors are also important:
- Requirement for collateral
- Minimum required credit score
- The urgency for the funds
Loans from a bank may take a long time, but online lenders can disburse the funds within a few days. They will charge a premium in interest for this facility.
- Be Ready with the Necessary Application Documents
After selecting the lender and the type of loan, you will have to keep some records prepared for loan processing. These are:
- Your Personal and business firm’s income tax returns
- Bank statements of your account and the account of a business venture
- An annual report stating the financial status
- A well-laid business plan
- Details about the probable use of the loan
- Filling up an offline or online application form, depending on the policy and type of lender
Disbursal of the Loan Amount
Your lender will inform you about the disbursement of the loan amount along with all other relevant information. Online lenders disburse the amount quickly, generally within a few days. The lender may deposit the amount into your bank account electronically or may issue a cheque. For most of the loans, no grace period is applicable. Monthly payments start from the date shown in the loan agreement.