Micro, Small, and Medium-Sized Enterprises (MSMEs) have increased in number since the Startup India programme was introduced in 2015. The programme is built around an action plan intended to encourage bank financing for new businesses. It has also promoted startups, which will ultimately result in more job creation and support the nation’s economic growth. Startup loans for new enterprises are available from a number of reputable financial institutions at competitive interest rates. Let’s talk about the procedures needed to obtain a loan to launch a new business.
A business loan can help you start or grow and upgrade your company but navigating the process and lending standards can be difficult if you don’t know how to get a business loan. Breaking it down into manageable steps from understanding eligibility to knowing how to apply for a business loan can help you find the one your business needs.
In recent times, women too are entering the entrepreneurial space and creating their niche in it. Hence, there are a growing number of enquiries for Business Loan for women. Hereare the steps to get a business loan easily.
- Review and check the startup costs you need to cover
Here is the list of common costs that come whenever you start a new business: - Equipment purchases, such as cash registers, machinery, and vehicles
- Purchases related to technology like computers, tablets, and printers
- Initial inventory purchase
- Permits and licenses, such as city, country, and state licensing
- Basic office supplies
Business furniture
After paying these initial costs, you’ll have ongoing expenses such as taxes, rent or mortgage payments, employee payroll, etc. That you’ll need to cover as your startup grows.
Once you have a solid understanding of how much funding you need, you are ready to pursue your startup funding options.
A business plans
Your business plan should include your financial projections for future sales, profit, earnings, cash flow, and so on and more qualitative goals for your business. How will you make a unique and significant contribution to the market you are in? Where and how fast will your business grow?
- Licenses, registrations, and permits
Before they fund your startup, lenders will want to see that you have taken steps to make your business official. - This means that you have officially registered your business with the required parties and have all the necessary licenses and permits required to operate your business.
Prepare Your Documents
Typically, when you are applying for a business loan for small businesses, lenders want you to demonstrate a steady income for months or years. This is not possible for a new startup company. The documents required to obtain a loan for a startup business also differ from lender to lender. Where a traditional bank or government business loan scheme relies heavily on documentation, the lender relies on relevant business and KYC documents rather than asking for unnecessary paperwork.
But there are certain documents that almost every lender will require. These are:
- Bank details.
- Income statement.
- Income tax returns.
- Business resume.
- Financial projections.
Check Eligibility
Once you complete your paperwork, you should check to see if you can qualify for the loan you need. Although eligibility criteria vary according to the lender, some of the common requirements of applicants include:
- Age between 21 and 65 years
- Indian citizenship holder
- Credit Score (higher the better)
- Current business plan
- Certain lenders also provide a Business Loan for women, with conditions tailor-made for them.
Personal credit
As a startup founder, you will not necessarily have an established business credit history to prove your creditworthiness. Therefore, lenders will look at your credit score as a way of measuring how reliable you will be as a borrower.
Banks will generally offerfinance to borrowers with a credit score of 700+. Anything below that and you’ll might have to start searching for lender who will accept your score.
Before going too far in your quest to get a startup business loan, make sure you know where your credit score stands. If it’s not where you want it, you can take steps to improve your credit score.
Your cash flow
Cash flow means the cash coming in and going out of your business. As a startup, you may find that initially there are more cash outflows than inflows. This is a common problem that many new businesses face.
It’s important to look at the strength of your cash flow before funding your startup to grow.If you have strong cash coming in each week, you may be fine to cover frequent payments. You will never want to end up in a situation where you can’t cover your loan payments ifin case your cash flow is weak.
Revenue and time in business
For small business lenders, the more time you are in business, the better.Many online lenders only require a minimum annual or monthly revenue to qualify for any type of loan. They want to make sure you’re regularly bringing in enough money to cover your loan payments.
When it comes to startup loans, you may have limited options at first because you haven’t been in the business long enough to start making any money.
If you struggle to find startup loans and you might have to do a lot of research before end up finding a lender willing to take that risk. If you have a year or even six months in business, you will have more options available to you.
Startup Business Loan Interest Rate
Interest rates are one of the major issues for a small business owner applying for a business loan. Higher interest rates can increase both the total repayable amount and the amount you must pay in each EMI. Since most small businesses operate on very low to non-existent margins, high-interest rates on business loans can be a major deterrent factor for them. In extreme cases, not having access to institutional finance may eventually cause startups to cease operations.
It is now a fact that startup business loans without collateral carry higher interest rates due to the increased risk of default for the lender. However, not every startup owner has significant personal or business assets for collateral. In such cases, lenders like Credit Success can help a startup by providing business loans. With Credit Success you can get the best interest rates that can suit the financial profile of your business.
Loan Type and Application Mode
Getting business loans today is relatively easy, with a variety of options to choose from. You can select a suitable type of loan based on the business requirement, from business expansion to equipment finance.
Standard business loans include:
MSME and SME Loans
A type of loan specially designed for the operation of any micro, small or medium-sized enterprise.
Working Capital Loan
A type of loan taken to finance everyday operations in a company, especially when liquidity is insufficient.
Machinery Loan
A type of loan, which helps enterprises to get money to buy new equipment or machinery and increase productivity. Once you’ve narrowed down the type of business loan, apply with the lender of choice. Nowadays you can apply online or offline depending on the convenience. But before doing so, make sure you understand the eligibility conditions. Generally, the application form for business finance consists of two sections a business statement and a personal statement. Make sure to fill all the data with the correct information for a hassle-free process.
Final thoughts
After the completion of these steps, Apply for a loan from the selected lender in person or through an online application. One must be careful and study all the documents carefully before applying for a loan to start a new business. If you are a woman, you may inquire about a Business Loan especially for women, as several lenders have started offering such products, given the growing number of women entering the entrepreneurial space.
