A business loan might just be the thing to assist you in your financial management and your company’s cash flow. There are various types of business loans available for SMBs of all sizes. Lenders have adapted their lending products to suit different-sized companies, the different stages of a business’s maturity and the variety of activities they engage in. While breadth of choice means finding the kind of lending to suit your business has never been easier, convincing lenders to agree to finance may be another matter. Whether you are a startup or a mid-sized enterprise, here are some things to consider before taking on a business loan with a financial institution. Short-term Lending and Working Capital Assistance Banks are one of the largest sources of startup funds in India, offering term, working capital and asset-backed loans. The challenge for many startups is that banks will typically require a greater proportion of collateral relative to the business loan than established businesses, even more so where the nature of the startup is novel or unproven. Term loans advanced against residential, commercial or industrial property up to 70% of its value, with a loan of between seven and 15 years are typical. To secure this kind of lending, the bank will ask for financial reporting including forecasts of returns and sources of repayments. Working capital loans for buying equipment or machinery and for stocking inventory are also possible along with asset-based lending to help with cash flow and growth. For businesses that lack collateral to put against a loan, the Credit Guarantee Fund Trust for Micro, Small and Medium Enterprises (CGTMSE) can lend them up to Rs.1 crore for term loan and working capital purposes. Loans under CGTMSE schemes are not easy to secure however, and only go to startups with convincing plans and showing a strong grasp of financial management. It is also worth looking at non-bank financial institutions like Bajaj Finserv which offers business loans of up to Rs. 30 lakhs without the need to provide collateral. Banks such as HSBC in India also allow Micro and Small Enterprises (MSMEs) to borrow up to Rs. 10 lakhs without collateral as security. Financial Assistance for Business Development MSMEs could also consider something like the Growth Capital & Equity Assistance scheme from the Small Industries Development Bank of India (SIDBI). If successful, businesses can use these funds for a variety of purposes including marketing, brand building, R&D and software purchases. SIDBI also offers the SIDBI Revolving Fund for Technology Innovation (SRIJAN) scheme which provides financial assistance to small companies to help them develop, scale up, demonstrate and commercialize innovative technology-based projects. The scheme offers early-stage debt funding on relatively soft terms to help businesses fund novel innovations in emerging technological areas, using unproven technologies or new products and processes. The funds available are typically up to Rs. 1 crore per project at interest rates of 5% or lower. Common Documents Needed to Secure a Loan When approaching someone for a business loan, these documents are almost always requested along with proof of your eligibility to borrow:
- Audit reports for the past three financial years.
- Details of any investments, other loans or cash balances.
- Three years’ sales tax returns.
- Business balance sheet or financial statement for the last three months.
Ensuring you have these essential documents can help speed up the loan approval process or help put credit reviewers at ease about your ability to repay the loan you are asking for. Accounting software like QuickBooks Online can help you organize your company’s finances and easily print your balance sheet, financial statement and sales receipts for when you’re ready to start asking for the loan you need. Visit our Small Business Centre to discover more financial management solutions for your SMB.