Things You Should Keep In Mind Before Applying For A Business Loan Online
For every budding entrepreneur, there comes a point in time when you feel that the only thing that’s holding you back from leaping up to the next level is a shortage of funds. Also, in a highly competitive economy, you would not want to lose out on any business opportunity that comes your way, just because you did not have enough cash in hand. Small businesses have a wide range of capital requirements, from expanding their current business venture to buying new machinery or even taking care of their working capital needs. However, it is difficult for small and medium businesses (SME) to secure loans from banks as the latter demands collateral. Therefore, unsecured business loans are the way to go for such businesses. This is made easier by the fact that most non-banking finance companies (NBFCs) allow you to apply for business loans online.
Unsecured business loans in India are given to SMEs without any kind of security and are disbursed on the basis of their credit score, rating and certain other criteria that assess their creditworthiness. Unsecured business loans are easily available as funds are sanctioned within days of the loan application is filed. Most NBFCs allow you to apply for business loans online but to get them approved in the shortest span of time, you need to keep a checklist ready. Here are seven key points you should always keep in mind before applying for a business loan online.
- Keep your business plan handy
Before a lender decides on your unsecured business loan application favourably, you need to convince him about your business plans and why you need to go for a business loan online. The lender needs to know that you are running a credible business and have the desired knowledge and skills to further expand it. Include all possible information that helps strengthen your case, including your stated goals, competitors, past and projected revenues, market research reports, etc. Write a clear and crisp business summary that will draw a lender into your business objectives. It will probably be the first thing they read and once they find promise in your stated objectives, they are most likely to accept your unsecured business loan application.
- Keep your financial documents ready
You would need to include all possible financial documents that strengthen your case and these might be required by the lender when you apply for a business loan online. These include your audited financials for the last 2 years, VAT returns and bank documents for the last 6 months, KYC documents of the applicant and the organisation, invoices for the last 3 months, and sales ledger for the last 6 months. Apart from these, to procure a business loan online, keep a structured business plan ready and show projected numbers so that your lenders can see your goals clearly, assess possible ROI and your ability to pay back the loan. Show your income and cash flow estimates for the next few years, taking into account all seasonal changes in your business, and how you will use the money you are borrowing.
- State the amount and purpose for taking the unsecured business loan clearly
Once you have finalised your financial documents and your business plan, you should have a clear idea of how much loan you need and where you will put it to use. If you list this information in a structured manner, it will be easier for you to explain it in person to the lender. Also, if you need the unsecured business loan for purchasing new equipment, then identify the name and type of machinery that you intend to purchase and also the marketing strategy that you will implement. Do a thorough research on the best price of such items and show it to the lender so that he understands the seriousness with which you are approaching your business.
- Personal credit history
This is one area any lender would look into in detail when you apply for a business loan online. Personal credit history becomes all the more important in cases where your business hasn’t had the time to build a credit history of its own. The lenders want to ensure that they are lending money to a person who is financially responsible and will use the unsecured business loan judiciously, for a genuine business need. Many lenders might also want to see your personal bank statements and tax returns for the past year and also that of other directors or partners of the company.
- Understand the total cost of the loan
You should calculate exactly how long it will take you to pay off your unsecured business loan and what are the respective interest rates charged by various lenders. There is also a processing fee attached to all loan applications and you should be aware of how much your lender is going to charge. This information is critical when you apply for a business loan online. Also, find out whether there are any hidden or pre-closure penalties during or after your application procedure.
- Compare all borrowing options diligently
This is one area where you will have to do a lot of research before you apply for a business loan online. You should compare the offerings of all financial institutions in the market—not just go by reputations blindly. Larger institutions and banks might bundle great offers but will usually take a far greater time in processing your loan application. Smaller banks and NBFCs provide you with a better chance of getting your unsecured business loan approved and in a shorter period of time. So a careful assessment of pros and cons will help you arrive at the best-fit loan for you.
- Repayment history
By paying loan instalments on time, you significantly improve your credit scores and chances of getting approval faster in future. Such a habit also keeps your financial standing strong and makes you eligible to receive unsecured business loans more easily in future.
As online lending platforms that offer customized finance products and speedy disbursal are becoming commonplace, it will be beneficial to avail unsecured business loans for urgent finance requirements.