Methods to acquire Hassle-free Business Loans

Created on 09 Aug 2022

Wraps up in 4 Min

Read by 5.6k people

Updated on 11 Sep 2022

Back in the day, Business Loans were synonymous with a tedious utility technique, strict credit evaluation, and exhaustive documentation. Nevertheless, Business Loan credit guidelines have become much more relaxed.

Nowadays, creditors provide beneficial tools like a commercial Business Loan Calculator and more to help businesses better estimate the costs involved. These, coupled with the debt capitalising and unsecured Business Loan facility, have acted as relief measures to alleviate the liquidity issues of MSMEs. 

Capital has always been at the core of all businesses. With the global economy entering a recession after a long and trying period of the Coronavirus pandemic, companies are finding it difficult to acquire funds for their working capital needs. With this step-by-step breakdown of the Business Loan application process, obtaining finances for your business will turn into a cakewalk.

Steps in the Business Loan application process

Whenever the word application is used in reference to financial institutes, people often think that a simple request outlining the fund requirements and its use is sufficient to acquire the necessary funds. However, as lending is a primary income source for banks, “application” is not just a letter or request but a complete process. Below are the steps involved in the application process of business loans.

1. Identify the type of Business Loan

There are various types of Business Loans available today. Some lenders even create tailor-made schemes for their clients. Some of the common types are:

a. MSME and SME Loans

These are particular types of loans designed specifically for Micro, small and medium-sized enterprises.

b. Working Capital Loan

These loans are required to finance the day-to-day operations of a company. These loans are not for purchasing long-term assets and investments but are for short-term operational needs.

c. Machinery Loan

These loans help a business purchase machinery or durable equipment improving operational efficiency.

2. Prepare necessary documentation

Business Loan approval is delayed primarily because of inadequate planning. By preparing the necessary documents in advance, you can deliver them properly and speed up the procedure. 

A lender could request that you provide them with papers such as:

  • Properly filled application form

  • Detailed business plan

  • Bank statements for the last six months

  • KYC documents of the company (PAN card, Ownership papers)

  • KYC documents of the business owner (PAN number, CIBIL score)

  • Income tax returns for the previous two years

  • Audited balance sheet for the last two years

3. Use a Business Loan calculator

To ensure acceptance, fill out the exact loan amount you wish to borrow. Lenders offer a free online Business Loan calculator. Use one to determine how much debt you can repay.

4. Exercise caution for certain factors

The loan approval process often takes the longest of all the functions in a Business Loan application. Regardless of how thoroughly you prepared the necessary papers, loan approval is always on an individual basis. Therefore, what may have worked for one borrower might not be effective for you.

Nevertheless, you should be careful about these factors:

a. Type of loan: To prevent default, ensure the loan type you select is appropriate for your company's needs. In addition, you might get a competitive interest rate with the right loan type.

b. Business Plan: In the eyes of the lender, a good business plan means that the business is likely to succeed.

c. Credit score: Nowadays, all banks have to verify whether an applicant is eligible for a loan. A credit score below 680 would make it hard to get a loan.

5. Improve your credit report

If you're not diligent, irregularities in your credit report may sometimes harm your credit score. If you find any mistakes, report them to a credit reporting agency for correction and to raise the score.

6. Assess all your lending options

After confirming that your credit record is clean, it's time to research and compile a list of institutions that are likely to offer the kind of loan you require. Pick the bank with the most lenient loan approval requirements and cheap interest rates.

7. Methods for quick disbursal

The process from loan application to disbursal typically takes about 3-4 days and relies primarily on how satisfactorily you fill out the application form. To efficiently speed up the disbursal procedure, adhere to the following:

  • Research the market for a suitable lender before you commit.

  • Make sure you follow every step of the Business Loan application process.

  • Facilitate open communication with the lender to understand major red flags.

  • Keep your financial record updated, especially in case of previous debts.

  • Pay off any outstanding debts to increase your capacity to borrow.

  • Apply online as paperless loan disbursals are typically faster.

The Bottom Line

Business loans serve a plethora of purposes for organisations, both new and old. Traditional financial systems painted borrowing to be a tedious process. But there has been a lot of development in the field, and fund acquisition has become easier.

Knowing this, business owners can approach expansion and other expenses without forcing funds out of their pockets. Loans should obviously be approached with caution, but if proper guidelines are set, organisations can infuse funds into their operations without diluting control.

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Deb P Samaddar

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