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2018-08-08 23:58:55Funding & FinancingEnglishGetting a business loan doesn't need to be stressful. If you're prepared and know what to expect when meeting with lenders, you end up... A Business Loan: All You Need To Know!

Getting A Business Loan: All You Need To Know!

3 min read

Getting a business loan doesn’t need to be stressful. If you’re prepared and know what to expect when meeting with lenders, you end up showcasing confidence and professionalism. This increases your chance of getting a loan for your small business.

Choose the Right Loan

It’s important to apply for the loan that best fits your business needs. Lenders usually have several loan options available. These include:

1. Term Loans
2. Loans Against Property
3. Cash Credit Limits
4. Letter of Credit

Term loans are used to finance assets such as land, building and equipment.

Next, loans against property require you to use residential and commercial property or vacant land as collateral. The money received against such a property can be used for most business purposes.

Cash credit limits are good for financing working capital requirements. Such a loan is drafted in the form of an overdraft, using your company’s inventory or receivables as collateral.

Lastly, Letter of Credit is normally used in trade transactions. It guarantees that the seller is paid for supplies/services as long as certain conditions are met.

Find the Right Lender

Each lender has a set of requirements that applicants have to meet to get a business loan. But some of the common things considered include: 1) your experience in business, 2) age, 3) annual business income and 4) cash conversion cycle.

You should check for all these requirements with the list of lenders you hope to consider. Apart from the set requirements, you should also compare the offers given by each lender. Make sure that the set requirements and the offers fit your needs. Some of the things that you must consider include:

1. Does the lender offer an additional value or monetary incentive along with the loan?
2. Is the average monthly payment amount reasonable?
3. Is there a penalty to pay the loan off early?
4. Can you get a payment extension if needed?
5. What is the interest rate on the loan?

Prepare Documentation Ahead of Time

Lenders typically expect your application to be well prepared. Therefore, gather your business loan documentation well in advance of your meeting with the lender.

With the application, you should submit the following documents of your company

1. PAN card
2. Bank statements for the last six months
3. Most-recent tax return
4. Profit-and-loss statement
5. Balance sheet

All of this information is easy to compile with cloud-hosted accounting software, such as QuickBooks Online.

Apart from the above, you’ll need an identity proof. It can either be your Aadhaar card, passport, voter’s ID card, individual PAN card, or driver’s license. All of these, except your individual PAN card, can be used for address verification too. Furthermore, you should consider bringing two forms of ID — just in case.

In case, you have an ITR/Trade license, an establishment certificate, or a sales tax certificate there’s a good chance your lender will need proof. Additionally, you should also provide proper Proof of Continuation documents.

Lastly, you should provide one of the following, depending your business type:

1. Sole proprietorship declaration or a certified copy of your partnership deed
2. Certified true copy of Memorandum and Articles of Association that’s certified by the director
3. An original board resolution document

Write a Clear Business Loan Proposal

A business loan proposal gives the lender a brief overview of your company’s: 1) background, 2) experience, 3) financial data, 4) marketing plan and 5) production plan. The very essence of your business loan proposal is to get the lenders’ seal on your loan.

Hence, it should also answer the following questions:

1) How you plan to use the loan money?
2) What are you trying to achieve?
3) How you plan to achieve it?

Throughout your proposal, you should focus on your purpose and why you’ll succeed.

To support your arguments in the proposal, consider including the following documents:

1. Case or market studies
2. Research that supports your conclusions
3. Client testimonials
4. Media reports about your company

To conclude, if you want a small business loan, you should sound professional, knowledgeable and authentic when you meet with lenders. Because if you’re confident about yourself, it’s a lot easier to make lenders be confident about you.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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