Jul 29, 2017 1

Enhance Business Loan Eligibility - Top 7 Secrets

The recent initiatives by the Government of India such as Make in India and Digital India have provided the necessary boost for growth to the SME sector. Indeed, with around 50% of the working population engaged with SMEs, the financial health and growth of this sector directly impact the Indian economy. For a defined global presence, India needs these small and medium sized enterprises to grow into larger industries capable of supplying to consumers worldwide.

Many young businesses have seen the light of the day in the recent years. Along with them, the existing micro and small businesses have also been incentivised towards their growth journey. However, along with young, innovative ideas and hard work, a small business also needs easy access to a business loan in India at the right time to capitalise on new business opportunities.

The advent of new-age Fintech lenders in the last few years has led to a variety of small business loans being made available for business finance that are tailored to suit different needs. It is integral for small or young businesses to adopt a systematic growth plan and follow it religiously to remain competitive in the global economy. By approaching FinTech lenders, they can be sure of getting business finance at the right time. Also, maintaining healthy financial and credit history helps in getting the maximum possible amount of small business loans as well as the best interest rates and repayment conditions. Here are key tips you should keep in mind to ensure maximum eligibility for a loan for business in India.

1. Maintain a healthy credit score: Good financial habits and a history of having paid previous small business loans on time not only help individuals but also businesses. A small business, especially when it’s young, is likely to have a good credit record to convince lenders about its business finance repayment capabilities. This is precisely what lenders want to be certain about before disbursing a loan for business in India. For a young business, the credit history of promoters is absolutely critical. Likewise, a small business should take business finance only when needed and for a specific business purpose. Also, never delay in repaying a business loan in India especially when you have the funds to repay them.

2. Be clear about the need for small business loans: Before disbursing a business loan in India, a lender would want to be absolutely sure about your need for a loan. Therefore, do your homework thoroughly and come up with genuine needs to convince a prospective lender. For instance, your business could be seasonal in nature and you could be confident of making profits during that period. You may want small business loans for that period to reach out to more customers. Using this logic, you could go ahead and convince a lender that the business finance amount will be used for business growth and will be repaid during subsequent months using the profits earned during the peak season.

3. Explore all business finance options: The first thing any small business would do is to approach a bank or traditional financial lenders for taking a business loan in India. However, most traditional players are riddled with non-performing assets and therefore, to cut their risk exposure, prefer disbursing secured loans only. This requires you to pledge collateral against small business loans. Most small businesses are unlikely to have collateral valuable enough to obtain the loan amount they require. Therefore, they should look at other possible sources of loan for business in India such as Fintech lenders that use cutting-edge technology platforms, provide a convenient online application process and if approved, disburse small business loans within a few working days.

4. Repay small business loans on time: The timely repayment of a business loan in Indiagoes a long way in not just establishing your creditworthiness but also in prompt disbursal of a loan amount should you need it the next time. Therefore, calculate your business need methodically and only borrow that amount you genuinely need for furthering your business. Also, do your mathematics around your expected business earnings during the coming months and based on it, come up with an estimate of the repayment schedule that you are going to comfortably meet. Such an attitude will help establish a trust factor in the lender’s mind and he will look forward to providing more business finance over a longer period of time.

5. No collateral, no worry: In the absence of collateral, you can reach out to the new-age Fintech lenders for business finance. Normally, banks and traditional financial institutions want to be absolutely sure about the creditworthiness of a business and therefore prefer disbursing loans against collateral. Fintech lenders understand the needs of a young business better and also the fact that they are not likely to have any collateral to pledge. They check the creditworthiness of a business and the likely revenue it will generate in future before disbursing small business loans without collateral. Therefore, they don’t tie the loan amount as a percentage of the collateral but offer it based on the business need. Moreover, they are quite flexible with the repayment schedule.

6. Keep a list of business receivables in hand: Nothing impresses a lender more than solid proof of a high-performing business. Therefore, collate all your business receivables—both past and those scheduled for the future—to be produced before the lender. In case you have receivables from blue-chip companies, regardless of the credit period, be rest assured your case for an unsecured loan gets even stronger. Once a lender is convinced about your business prospects, he is not likely to ask any further questions before sanctioning your loan amount. In fact, he might offer even better financial products than what you had applied for.

7. Keep all financial documents ready: A little bit of meticulous planning while applying for small business loans not only shows your seriousness and genuine business need but also creates a favourable impression in the mind of the lender. Therefore, collate all required financial documents such as tax returns, VAT returns, identity proofs, previous loan repayment proof and business receivables in hand before applying for a loan. Looking at all the right documents in the first instance would make the lender take notice of your application and begin processing the loan with a positive intent.

For more on this, check out my post How Much Business Loan Does Your Business Need