Using your savings to finance your business may not be a smart move if you need money for other expenses. At such times, the right course of action is to apply for a small business loan in India.
Unsecured (collateral-free) loans were a sort that are utilized to support small enterprises. These loans are made available by banks and non-banking financial institutions to assist MSME loan business owners in meeting their demands, such as expanding their offices or hiring additional staff.
How can I apply for a small business loan in India?
You must review the eligibility requirements and required documents while applying for a small business loan with your lender. Your loan application depends critically on a variety of additional criteria.
The steps to apply for a small company loan are as follows:
Plan your business.
Drafting a business plan is the first requirement before submitting an application for a small MSME scheme in India. However, not all lenders request a business plan; some prefer to review the financials of the company. A marketing strategy should be written and submitted with your application. It should include information about your company and how you plan to use the loan amount to accomplish your goals.
You will also need to submit documents describing your social presence, distinct market advantages, and industry statistics. It aids your lender in determining how much you require and the suitable interest rate.
The following documents must be included:
- Business and personal ITR.
- Banking records
- Financial records
- Driving permit Business license Corporation articles Resume
- financial forecasts
Verify your credit rating.
The lender would base their loan selection on your credit score because a small business loan in India is an unsecured sort of loan. It is very important for loan approval. Your credit history, credit history duration, credit use, credit mix, and new credit are all taken into account when determining this three-digit number. It enables the lender to determine if you are a reliable borrower or not.
To qualify for a small company loan, most lenders set a minimum CIBIL score of 700. However, you must keep your CIBIL score over the specified range to apply for the best interest rates. Therefore, verify your credit score and, if required, take steps to enhance it before applying for a loan.
Evaluate your needs
It is important to note that lenders expect customers to have a valid purpose for needing a loan. You must decide, for instance, whether you want to hire additional workers, need a loan to buy equipment or both. These factors will reduce the time it takes to process your application. Your application might be rejected if you provide poor reasons, like the purchase of non-essential business assets.
Therefore, you must consider your demands and the reasons for choosing a loan before completing your application for a loan for your small business in India. Also, you’ll need to persuade the lender that you can make payments. Knowing your loan needs is vital to avoiding overrating them and losing credibility with the lender.
Think about your business age.
Most businesses fail within their first several years. Lenders impose a minimum business age limit to apply for a loan for this reason. You must have been conducting the business for at least two years in order to qualify for a small business loan. Additionally, lenders look at how long your company has been operating rather than the time length it has been legally listed with the government.
Prepare and submit the relevant forms
Although the documentation needed to apply for a loan varies between Indian lenders, these are the ones that are required on all platforms:
- Aadhaar Card, Driver’s License, or Voters ID Card as proof of identity
- Passport, utility bill, or voter ID card as evidence of residence.
- Account Statement (for the past six months)
- Personal and commercial income tax filings, a balance sheet, and a profit and loss account
- Business permit and sales tax receipt
- Documents for registering a business include a sole proprietorship deed, a partnership deed, articles of association, and a memorandum of association.