To run a successful business one requires a lot of funds. This is when a business loan can prove to be useful. A business loan is a loan acquired to meet various short-term and long-term needs, such as purchasing raw materials and machinery, expanding business operations, and more. Getting the wrong loan can put you in a situation where you struggle to repay the debts.
Obtaining a business loan online can be a complicated process. Thus, we have provided the following guide to make it easier for you to get your small business loan approved.
1. Prepare an effective business plan.
Your business plan plays an integral part in the approval or rejection of your loan. While granting the loan, the lender wants to see a well-detailed business plan to get a clear picture of how much cash flow your business is capable of generating in the coming years. Plus, it also helps to convince the lender that you do not have lending, speculating or gambling business. The plan should be unbiased and must be based on the current business environment. Further, it should also show how you decide to use the funds you hope to receive.
2. Check your credit score.
Since the business loan is unsecured, lenders usually check your credit report to ascertain your financial stability to repay the loan. A strong credit score above 750 gives a good impression to the lender and can improve your credit approval chances. A poor score, on the contrary, can lead to the rejection of your loan application. And, even if it is approved, you will be charged with a high business loan interest rates. So, before you choose a small business loan, it is recommended to improve your score by clearing all previous debts and avoiding late payments in the future.
3. Find the right lender
There are a plethora of lending institutions operating in the market that offers small business loans at different rates. Choosing the most appropriate one can boost your chances of availing the business loan at affordable interests. So, make sure the lender has a good reputation and has a hassle-free business loan eligibility criterion to boost your chances of securing a loan. Further, also check the loan terms and conditions, duration of the loan, prepayment charges, hidden fees, etc. offered by the lending institution.
4. Assess your loan eligibility
Every lender has its eligibility criterion, which the borrower must meet. Instead of delaying the loan approval process or getting your credit score reduced, you must ensure that you qualify for the loan and meet all the requirements of the lending institution. The eligibility criteria for a business loan includes the minimum credit score required, the minimum turnover of the current or past business, age of the applicant, annual income and the number of years in business.
5. Keep your documents in order.
Most of the times, your small business loans may be rejected due to lack of necessary documents. Before you apply for a business loan online, make sure you have all the required documents as mentioned by the short-listed lending institution. The document required may differ from lender to lender. However, the most common documents include:
- Business and personal income tax returns along with computation of balance sheet, income and profit loss statement for the last two years
- Bank statements
- Business financial statements
- Proof of continuation
- Identity and address proof
Some lenders may also ask for legal documents related to the business, such as Memorandum and Articles of Association, commercial lease, etc.
6. Fill out a business loan application.
Once all documents are gathered, now you can start filling out your loan application. You can fill out this application online by visiting the official website of the lender, or you can walk up to the branch and ask the concerned person to help you with the same. Also, make sure that you read all the terms and conditions correctly and agree to them before signing the document.
After receiving your request, the lender will evaluate your loan application and conduct a background check to verify all the information provided by you. If everything seems satisfactory, your loan will be approved, and the specified amount will be credited in your account within a few business hours.
