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SME India: here's how you put together an ideal loan application

Monday, July 09, 2018

It can easily be inferred that many business owners are intimidated by the process of loan application and, as a result, falter at the time of preparation.

While business loans for start-ups benefit business owners in more ways than one, it is crucial for them to understand how to prepare the perfect loan application before starting the process.If you too are looking to apply for a loan anytime soon, the following tips could help.

#1Prepare your finances
This can be done in two ways – organising your finances and understanding your options. Carefully read through the loan application checklist and educate yourself about the types of loans available, their terms and application processes.

# 2 Choose your lender
Before you make up your mind about applying for business loans for start-ups, whether with a local bank or online, it is important to do an in-depth analysis. Cheaper rates of interest, reference checks with previous clients and face-to-face interaction are some advantages of bank loans.

However, faster processing, easier application process and fund availability even in case of bad credit scores are some of the bigger benefits of online loans.

You choice could depend upon what your priority is – lower rates of interest, which are possible through bank loans, or faster availability of funds, which is possible through online loans.

#3 Step into the lender’s shoes
A lender risks his funds by loaning them to you. To be comfortable in doing so, here are some factors that he takes into consideration:

a.    Loan Amount: Your desired loan amount should be between 8% - 10% of your annual revenue.

b.    Loan Purpose: You should have a specific plan that shows how you intend to spend the loan amount acquired. A lender needs you to describe your business’ goals, both financial and qualitative, as well as share your financial projections of future sales, profits, cash flow and income.

c.    Credit Score: You should have a good credit score that assures the lender about your repayment capacity and intentions. If you have proven to be a responsible borrower in the past, any lender would be happy to give you a loan.

d.    Bank Balance: Most lenders look at your bank statement to understand how you manage your cash flow. If your bank account has enough funds to cover loan payments, your chances of getting a loan go up.

e.    Business Profitability: Your balance sheet indicates the financial health of your business. Most lenders assess it to ensure strong sales and stable revenue.

f.    Industry: Your industry should be risk-free and not something that is a no-go for lenders.

# 4 Follow the best practices
Transparency is the most important factor in any transaction.

When you are preparing to apply for a loan, keep all valid documents ready. Be truthful and accurate about every bit of information that you provide. Giving extra information, instead of lesser, always works in your favour.

Also, be mindful and alert of any follow-up information required by the lenders and assure them of your cooperation and credibility.

Prepare yourself for a loan, way before you even need one. Stay organised, update yourself with the right information and have a respectable financial standing in order to become a perfect loan applicant.

"By association with Digikredit Finance Pvt Ltd , an NBFC, which operates under the name SMEcorner and offers credit to small business owners."

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