Money is nothing but the life blood of a business. Money plays an important role in a business. May it be for beginning a new business or growing your existing enterprise, money is required in every walk of life. Capital for business can simply be raised from personal finance like investments and savings or by availing SBI business loan, HDFC business loan or business loan from any other lender.
What is meant by a business loan?
A business loan refers to the cash amount lent by financial institutions to a company or business for economic goals like additional investment, expansion, and others. This kind of funding assists companies meets their instant expansion requirements and growth necessities. Read on to learn about business loans.
Why is a business loan necessary?
Business loans can assist your enterprise in expanding or meeting your daily expenses in case of inadequate working capital. You may also use the borrowed funds from the SBI business loan or HDFC business loan for purchasing business machinery and equipment, developing your overall infrastructure or operations, managing daily cash flow, and hiring more individuals. Business loans can assist you in keeping your business functioning smoothly while also allowing you to take the benefit of market opportunities.
What is an MSME loan?
Accumulating working capital for meeting your company’s day to day expenses is important and a hectic task. Finding the means to raise funds for small to medium-sized companies with few collateral or assets may be extremely challenging.
MSME loans, also called micro, small and medium enterprise credit options, are loans that can be availed to meet your company’s daily requirements. This loan form endows you with the right working capital that can be used by you to purchase goods and services, acquire new equipment, repay your lenders, or expand your company. MSME loans may be available from various lenders in India. The rate of interest may differ from lender to lender.
| Medium | Small | Micro |
| Investment is restricted to twenty crores while the revenue is restricted to 100 crores. | Investment is restricted to 10 crores while the revenue is restricted to 50 crores. | Investment is restricted to 1 crore while the revenue is restricted to 5 crores. |
The rate of interest on MSME loans starts from 7.65 percent p.a. Based on the business loan lender, the loan proceeds may range anywhere between Rs 50,000 and several crores, and repayment tenure can go as high as 15 years. Here are a few crucial things you must be aware of before asking for a business loan from a non-banking financial institution or bank.
How to avail loan as per MSME?
For you to know this basic question, i.e., “how to avail a business loan?”, start with evaluating your business loan eligibility. You can place the application for a business loan if you are any of the following:
∙ Proprietor
∙ Self-employed
∙ Private limited businesses that are involved in a manufacturing business
∙ Traders
∙ Individual dealing in services
∙ Partnership firms
In case you are a women entrepreneur, ensure to explore the scheme named ‘stand up India’. It is an initiative that offers financial assistance to women entrepreneurs and individuals from scheduled tribes and scheduled caste categories. Your overall development can be easily financed through this scheme. You can even benefit from MSME loans for manufacturing, trading, and service to start new businesses.
For a smooth process, ensure to follow the general conditions of loan eligibility:
∙ During the loan application time, you should be at least the age of 21.
∙ During the maturity time of the loan, you must not be more than 65 years.
∙ At the least, your company must be profitable in the past 2 years.
∙ Your business must have been in operation for a minimum of 2 years, and you must hold at least 5 years of management experience.
How can you place an application for an MSME loan?
Unsecured business loans can be availed from digital lenders and private sector banks like HDFC business loans. In case the lender wants you to fill up the online application, then you must complete this with the necessary info and submit it through the lender’s site. On the other hand, you can ask for the application form from your bank. Call ahead to know what important documents are required.
How can you boost your eligibility for a business loan?
To enhance your business loan eligibility, you must demonstrate your potential to repay the business loan. Here are some of the suggestions –
Maintain a strong credit rating
A credit score is the major indicator of credibility. A strong credit score shows that you are responsible financially and unlikely to face any payment default. It even demonstrates your potential to make crucial financial decisions. A company’s loan eligibility is impacted by or credit score of the founder and the company’s past repayment history compiled with various institutions. A strong credit score of 750 and above always enhances your credibility, which indirectly increases your credibility for a loan.
Show a healthy company’s cash flow.
Lenders usually evaluate your business cash flow projections to know if it is adequate for the loan size that you are looking to avail. Past tax returns and other crucial financial documents are even analyzed. So, make sure there is adequate cash flow to the lender, as cash flow loans do not need you to pledge any of your company’s important security or assets.
Keep your loan application document handy.
Make sure to compile all the required documentation to simplify your loan application procedure and ensure things are easier for you as well as the lender. Following are the important verification documents:
∙ Address and identity proof
∙ Business proof
∙ Records of personal and business tax returns
∙ Business legal documents
∙ Business financial statements
Dos and don’ts when availing of a business loan online
As the lending market is dependent upon precaution and care, here are a few of the important things you must do and avoid when applying for an MSME loan. Read on to enhance your chances of availing a business loan for your company while reducing your rejection risk.
Dos
∙ Compute your loan needs
∙ Check your credit profile and score
∙ Accumulate all the important documents in the digital form
∙ Keep your loan repayment plan ready
Don’ts
∙ Avoid applying with numerous lenders because this lowers your credit score
∙ Avoid delaying your repayment on your existing debts because this impacts your financial goodwill and credit score
Ending note
Availing of a suitable business loan from the appropriate financial institution at the correct time can save considerable time, effort and money while permitting you to expand your business considerably in the future.