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Thursday, May 10, 2018

Find out if you’re Eligible for a Business Loan

A small business venture can be funded in two ways: equity financing and debt financing. Equity financing involves selling stocks/shares of your business to an investor in exchange for funds. Once you do that, the investor has part-ownership of your company. As the name implies, debt financing is a loan received from an individual/organisation. You borrow a certain sum of money, which you’ll have to return within a time-frame in instalments. In such a case, you won’t only have to return the principal amount, but the interest as well, which will be charged at a particular rate.

If you happen to have a business idea in mind, the first step to establishing your company is over. The second step will include:  how to get a small business loan, and more importantly, how to get a business loan approved. Read on for more information:

Your Guide to Loans for Small Businesses

You could either be looking to implement your business idea or expanding your business if you’ve already established the foundations for your company. Either way, a loan is required to make your dream a reality. Here’s how you can procure one:

Assessing your Financial Foothold

Get your hands on your credit report to check its accuracy. Don’t stop there, obtain credit reports from all the credit reporting agencies you deal with. A lot of banks authorise the loan applications based on credit reports. 

You can then go about assimilating all your financial statements as the lender will require them to ensure your ability to repay the loan. This will include balance sheets, income statements, and proof of consistency of net worth. Your financial statements should date back 3 years. A few other beneficial documents to have at hand are a complete breakdown of the debt repayment schedule, and the details of accounts payable and accounts receivable, which should be at least 3 months old.

Providing your lender with an insight to your business plan, and the profits you aim to make a year from now will also help in procuring a loan. Try maintaining industry standards by using spreadsheets while disclosing your plans. Solidifying your eligibility for small business loan is the reason why you must take this step seriously.

Finalizing your Loan Application

The lender will expect you to submit all documents required for small business loan for verification to ensure you’re eligible.

An executive summary would include details of your business background, the nature of business that you wish to establish or expand, the amount you’ve requested for and its purpose, and how you intend to make the loan repayments.

You should also disclose your personal details, and the details of your colleagues with whom you are collaborating to start your business. These will include anecdotes from everyone regarding the plans for taking the business forward, and generating revenue. The lender requires assurances regarding the repayment of the loan. And what better way to give it than providing a personal statement with others to second it.

Sharing a business plan with your lender with details of your business objectives—the nature of business, and products/services offered—is a good step towards having your loan approved. Besides the objectives, you must also give your lender a summary of the profits and turnover you stand to make, and the details of your competitors. Information such as the employee and customer strength will also prove handy while convincing your lender that your business targets are achievable.

Here’s a checklist to help you get all the documents sorted for the loan application:
  • Proof of identity ( Voter ID, driver’s license, or passport)
  • Address proof (house agreement/ration card/telephone or electricity bill)
  • Bank Statement ( last 6 months)
  • Latest income tax report
  • Balance sheet and profit & loss Statements certified by a chartered accountant.
  • Educational qualification proof
  • Trade license/sales tax report/establishment certificate
  • Proof of business existence (at least 2 years old for an existing business)
  • Proprietorship declarations, partnership deeds, copy of MOA, AOA, and board resolution

Submitting an Application for Loan Qualification

Once you’re done finalising all the documents for the loan, call the officials and set-up a meet for the verification of the documents and the loan application. You can skip this part if you’ve taken a loan before, but it’s advisable to go over this process anyway to ensure you’ve provided all documents required.

Afterward, it’s a waiting game while the lender goes through your loan application, documents, and gives his stamp of approval.

Here are 4 things lenders look for in a loan Application:
  • Sufficient equity invested in the business: individuals with equity are more likely to repay loans.
  • Turnover of the business for loan repayment.
  • Collateral in case loan repayment is unsuccessful.
  • Resource management: balancing management of goods and services, and debt repayments. 

If you’re still confused regarding the process of how to get a loan to expand a small business, there’s always the option to apply for business loan online. 

There are several sites that offer alternatives such as individual investors and business houses. Interest rates may be a little more when compared to a bank, but considerably less than many credit cards. Do your research, outline your business objectives, and choose the best lender, as some offer a one-time fee while others charge on the basis of interest rates.

You might be cognisant of the problems faced by small businesses applying for a loan now. The best way to kick-start your business dreams is to have a solid business plan, provide all the necessary papers, and convince them that you’ll be able to pay back the loan in time.

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