A business loan guarantees that it will be able to cover its operational costs even during difficult economic times. Business loans have flexible repayment terms and don’t require collateral. A company loan can also be used for a wide range of business needs, including paying employees’ salaries, investing in new equipment, and making sure your office space is paid for.
However, certain eligibility criteria need to be met by a borrower for a Business Loan. This is because the lender needs to be confident that the borrower can meet all the repayment deadlines.
The good news is that there are certain time-proven ways in which you can bolster your Business Loan application and make a good case to get your Business Loan.
Here are five simple tips that will help you qualify for a Business Loan.
Having Enough Cash Flow
The first thing that a lender will check in your Business Loan application is your cash flow. How much money are you generating every month and how much of that is being spent?
- If you have a very small operating margin or if you have negative cash flow, then a lender will be doubtful about your ability to repay the loan.
- Hence, it is crucial to have a positive cash flow with a wide-enough operating margin to show that you have enough leeway to be able to service the Business Loan.
- You can calculate the monthly payments required to service your loan through a Business Loan EMI calculator on the lender’s website. Once you know your monthly payments, you can check whether your operating margin is wide enough to be able to repay the loan that you desire.
- If your cash flow is not adequate, then you can consider lowering the loan amount so that you’ll be able to make smaller EMI payments. You can also consider trying to elongate the tenure of the loan to see if the extra time will help your situation.
- A quick way to increase your cash flow is to get rid of any unnecessary business expenditures.
Having A Good Business Plan
- You can submit your business plan along with the loan application documents that are required. Having a good business plan can be a game-changer for your loan application. If you lack in certain areas of your application, then having a good business plan can make up for it.
- A business plan needs to detail the planned future of your business and your vision for it. It needs to consider market research, marketing, and sales strategies, financial forecasting, and so on. Further, the plan needs to be set out in the best possible way and written in clear and authoritative language. Think of it like you’re pitching a venture capitalist for funding. You’re doing something similar but it’s debt instead of an equity transaction.
- Further, don’t just present the best-case scenario. The loan officer will want to know how you plan to service the loan if things do not go as planned. So, you need to have a backup plan to show that you still intend to honor your commitments and have a way to reimburse the lender even if things go south.
- If a loan officer has confidence in your business plan, then they may feel confident in your ability to service the loan.
Improve Your Credit Score
- A lot of people feel that their credit score is out of their control. They do not understand how it works. However, the fact is that you do have control over your credit score.
- The credit score reflects your “credit history”. This means that CIBIL checks every credit that you have ever availed of and notes down whether you’ve been able to repay the credit on time. This includes your credit cards and your overdraft facility.
- If you have a bad credit score, then there are several ways to improve it. You can make sure that all the credit that you have taken is repaid as soon as possible before the payment due date. You can keep separate accounts for your business so that your credit score does not hit negatively. Further, you can ensure that your credit utilization ratio hovers around the 25% mark. This will help you qualify for a Business Loan.
Also Read: 5 Useful MSME Business Loan Tips For Young Entrepreneurs
Make Sure All the Documentation is in Order
Your Business Loan application will contain certain documents such as your identity, your financial statements, your income tax returns, your business accounts, and so on. It is essential that all these documents reflect well on you and all the information is accurate.
Further, the loan officer may ask for additional documents at any time. These documents can be the articles of association of your company, your sole proprietorship declaration, and so on. You need to keep all these documents available and ready to send at a moment’s notice. It will be good if you have both hard copies as well as soft copies. This will reduce the time it takes to process your loan as well as show that you’re a seasoned entrepreneur and keep your business organized.
Be Clear on the Purpose of Your Loan
A Business Loan can only be availed for business purposes. However, it gets more detailed than that. You need to be able to communicate to your lender the exact reason for your loan.
Are you taking out a loan to be able to pay your employees? Are you buying more raw materials? Are you opening a new office? And so on.
If there is a clear reason for the loan, it is more likely that you will qualify for Business Loan.
Wrapping Up
There are several ways in which you can improve your Business Loan application. Make sure that you go to the lender’s website and check their eligibility requirements. These requirements will give you a sense of what the lender is looking for. Further, ensure that you put your best foot forward and leave a good impression.
FAQs
Can I get a Business Loan with a 500-credit score?
A credit score of 500 generally falls into the “poor” range, which is an indication of a high risk of defaulting on loan payments. However, there are still some alternative lenders and financing alternatives available for individuals with lower credit scores. These include
Online lenders: They have more flexible lending criteria. However, they may charge higher interest rates to compensate for the higher risk involved.
Microlenders: They are non-profit organizations that provide small loans to entrepreneurs. The purpose is to support small businesses.
Peer-to-peer lending: Some platforms help in connecting borrowers and lenders. These lenders provide loans to borrowers with low credit scores as well.
Alternative financing options: Alternative financing options like business credit cards, and business lines of credit are very useful for those with a low credit score.
Is it difficult to get a Business Loan?
Without an established credit history and low credit score, securing a Business Loan can be a bit challenging, specifically for small businesses and entrepreneurs. Assessment of factors like the borrower’s creditworthiness, business financials, business plans, and risk involved plays a crucial role as well. So, to get a Business Loan smoothly, borrowers must meet all the criteria.
