First Time Business Loans – What You Should Know?

1. First Time Business Loans – What You Should Know?

2. Anyone who decides to start a business should consider money as crucial factor. Most of the time, a huge part of your savings will have to pooled into towards capital investment. Those who are getting into business for the first time can make use of a business loan to accumulate sufficient capital investment and also for working capital purpose. While there are many banks ready to offer business loan for start-ups and new businesses, it is left up to you to understand what your requirements are. Based on the requirements and ability to repay the pay amount, loan should be taken from bank. So, what should you be considering before applying for a business loan? Here are some of the important factors to be considered before applying for a business loan in India:

3. Have Clarity on Your Business • Not just for the purpose of loan, but in general you should have good clarity of your business and its turnaround. Before deciding whether to start a business or not and before applying for a business loan, make sure you have answers for the below questions with regard to your business. • What does your business do? • What’s your industry? • Who are the clients? • How and when do you get paid? • How have you previously managed credit? • What are the margins?

4. Banks have High Expectations • Though there are many banks that are ready to offer loan to customers, they are very cautions. Anything that could lead to the risk of default will be reconsidered by the bank. This is the very reason why banks ask for collateral and additional papers and documents before approving loan. Those borrowers who are looking to take a business loan should be able to offer collateral for the purpose of loan or should be able to prove as a worthy candidate to repay the business loan. • Talk to an Accountant • At times, even though you are very clear about your business, knowing how much business loan to take is always a question. Banks will let you know what can be the maximum eligibility for business loan based on your credentials but it is important to understand how much loan is actually required. • Build Credit • If you are planning to start a business is next 2 years, then it is important to start building your credit and contacts. An applicant with good creditworthiness will get loan quicker with low documentations and interest rates.

5. Good Relationship with Your Lender • Getting a loan from the lender is not the end of the relationship, there will be lot of future scenarios where in you will be required to contact them for information, instruction and support. Apart from what are mentioned above, the other main factor when it comes to business loan is providing right documentation to the lender. If the applicant produces all necessary documents at the first go, then the chances of getting business loan approved within 7-15 days is 75% high. Documents essential for applying a business loan in India are: Checklist of Documents Required for a Business Loan. • Bank Statement • This is to prove to the bank that being the owner of the bank you are eligible for profit of the business and the same being credited to your bank account from time-to-time. • Balance Sheet • Business balance sheet will help the bank to get a clear picture of your business. Based on the balance sheet analysis, banks will determine the profit earning capacity of the business. It is always good to get an accountant to manage your business balance sheet to ensure accuracy and reliability.

6. Profit and Loss Account • Along with business balance sheets, lender will scrutinize the Profit and Loss Statement as well. These two are the main documents used by banks to determine to worth of your business. This statement is also commonly known as P&L account statement. • Personal Credit Score • Just like all other types of loans, even for business loan personal credit score is considered by the lender along with the creditworthiness of your business. Personal credit score above 650 is considered good from banks perspective and with this score or above if you apply for a business loan, there is less chance of being rejected due to low-credit. • Business Tax and Personal Tax Returns Paid • If you are a citizen who files taxes regularly, then it is an added advantage. Whether it is about paying personal tax or filing business tax, it is important to make these payments on-time. Tax filed receipts has to be furnished to the lender in case if they request for it during business loan approval. • Business Tenure • Documents proving the tenure of the business should be furnished. The commencement date, incorporation certificate has to be furnished to the banks upon request. The tenure of the business and the return is calculated by the banks to understand the profitability of the business and loan repayment capacity.

7. Useful Tips • Some of the other tips while applying for a business loan are: • Make timely payments. • Have accurate planning, forecasting and book keeping. • Monitor business’s financial health in regular intervals. • Have a positive attitude. • Analyze if you have the capacity take on new debts. • Have long term and short term goals. • Keep this organized and managed. • Maintain good relationship with lenders and customers. • Do not use your resident house and such huge personal assets as collateral for business loan. • Have cash flow forecast.