In order to avail a business loan, an applicant needs to follow the process set by the lender. This process can be confusing to many business entities. In this article, we will explain the business loan application process.
Money is crucial for every business to run smoothly. Furthermore, there can be situations that can cause businesses to seek funds, such as managing cash flow, investing in products, etc. In such cases, many businesses apply for business credit to get the funds required to meet the expenses.
A business loan is a great financing option for business entities. Getting a business loan can help them pay for various costs easily. Most lenders provide business loans to professional as well as non-professional business entities. However, to avail a business loan, an applicant needs to follow the business loan process of the lender.
But before understanding the application process, you must know a few things about business loans. Let’s take a look at things you should keep in mind if you want to avail a business loan-
Different Types of Business Loans
There are various types of business loans. An entity can choose a loan based on its financial requirements. Here are some of the types of business loans-• Term Loans
A term loan is a loan that the borrower needs to repay within a specific duration. The repayment tenure is set by the lender when the loan application is made.• Working Capital Loans
In order to meet everyday financial requirements, purchase goods, buy inventory, enhance business cash flow, etc., businesses take working capital loans. Generally, working capital loans have short repayment tenure.• Machinery Loans
A machinery loan is a loan that can be availed to buy machinery. Many large manufacturing businesses avail this loan. The business loan interest rates, repayment tenure, and loan amount will vary from one lender to another.• Letter of Credit
Many trading companies take a letter of credit for business purposes. This credit can be used for export as well as import requirements of businesses.• Micro, Small, and Medium Enterprise (MSME) Loans
MSME loans are given to MSMEs, individuals, start-ups, and other business entities. These loans can be offered as working capital loans, overdrafts, etc. Before an entity applies for MSME loan, it must check if they meet the eligibility requirements of the lender.
Documents Required for Business loan
Submitting the correct documents is essential to ensure a hassle-free loan application process. A business entity will have to submit documents like-• Application Form
The entity needs to enter the required details in the application form.• Proof of Identity
PAN card, passport, driving license, etc.• Proof of Age
PAN card, passport, etc.• Proof of Address
Aadhaar card, lease agreement, electricity bill, Ration card, etc.• Financial Documents
Bank account statements, IT returns, P and L sheet audited by a CA, etc.
Furthermore, the requirement of documents might vary for professional and non-professional business entities.
Some of the documents required for non-professional business entities are-• Identity proof of the sole proprietorship • Income tax and sales tax returns documents • Bank statements
Some of the documents required for professional business entities are-• Identity proof • Income tax returns • Residence proof
Consider a Few Important Factors
There are various factors that lenders consider when approving a loan. In order to ensure the loan gets approved effortlessly, business entities must keep a few things in mind, such as-• Provide the Correct Business Plan
Provide the correct details about the business plan to the lender. Make sure to inform the lender about how the loan amount will be used.• Loan Type
Selecting the right loan type is crucial as it can help the borrower meet the financial requirements. It can also help them avoid bad debt.• Credit Score
One of the most crucial factors that impact an applicant’s loan application is the credit score. It’s recommended to build a good credit score before applying for a business loan. The higher the credit score, the higher the likelihood of the loan getting approved.
Make Use of a Business Loan Calculator Before Applying for a Loan
Most lenders offer a business loan EMI calculator on their online portals. It’s recommended to business entities that they use this calculator before applying for a loan. They can get an estimate amount of EMI they’ll have to pay based on their loan amount.
Steps to Apply for a Business Loan Online
It has become easy for people to make a loan application as most lenders allow people to apply for business loan online. The process to apply for business loan is easy-
The lender’s representative will contact the applicant once the application is made.
Entities can grow their business exponentially with the help of a business loan. It can provide quick access to necessary funds and can be availed easily. However, before applying for a business loan, it’s crucial to check the lender’s requirements for a smooth process.