How to Get a Business Loan Approval for Your Small Business

Sufficient capital is necessary for any business, regardless of industry and size. Running and growing a business is nearly impossible without adequate funding. But where will you get the funds when you do not want to disrupt your savings? The best solution is to take a Business Loan. A small or medium-sized entrepreneur can efficiently operate or expand their business using loan funds. When used wisely, capital from a Small Business Loan boosts the business turnover and helps achieve a substantial profit. 

Knowing how to get a Business Loan is easy, but the key is to ensure approval of the loan application. Here are a few tips to help you secure approval on an SME loan. 

  1. Have a Sound and Detailed Business Plan

Before applying for a Business Loan, it is vital to understand the need for financing to reach the right loan amount. The most effective and smartest way to do that is to have a clear business plan. Even if many NBFCs do not need a formal business plan to lend Business Loans, it will help you create estimates to use the loan profitably and repay it conveniently. The plan must include demand metrics, cash flow projections, capital usage, revenue projections and company goals. With clear and realistic goals, you will feel more confident while going for the loan.

  1. Keep Tabs on Business and Personal Credit Score

One important criterion to obtain a Business Loan is that the applicant and the business must have a decent credit rating. Loan applicants must take care of two metrics:

  • Personal CIBIL score
  • Company’s CMR score

Lending institutions will check these two metrics before approving a Business Loan. So, keeping them healthy attracts quicker approval, better Business Loan interest rate, and bigger loan amount. Loan providers are likelier to trust applicants with a good credit rating for timely loan repayment. Avoid missing loan EMIs and keep the ratio of your debts to your income low to maintain a CIBIL score of more than 700 and a CMR score of up to 6. 

  1. Decide on an Adequate Loan Amount

Know exactly how much money is necessary for the business plan before applying for a loan. Evaluating the business’s exact financial requirements is essential so the borrower does not end up with a shortage or excess of funds later. Not borrowing a sufficient amount might cause a shortfall in the working capital, while over-borrowing might result in extra debt. Creating a well-planned business budget will help avoid such situations. Additionally, it addresses the loan provider’s concerns regarding fund usage and cash flow, if needed. With this, an applicant can take informed decisions regarding the ideal Business Loan.

  1. Ensure Fulfilling the Eligibility Criteria 

Typically, MSME loan eligibility revolves around the applicant’s age, business vintage, annual turnover, and credit score. Loan seekers need the following to qualify for an SME loan from major NBFCs and banks:

  • A business vintage of at least 3 years
  • Minimum annual turnover of Rs. 1 Crore
  • A healthy CIBIL score of 700+ and a CMR score of up to 6
  • Age between 21 and 65 years of age
  • Business nature including a proprietorship, private limited company, closely held non-listed company, or partnership firm in the manufacturing, services, or trading industry

Always check the loan company’s eligibility terms to know how to get a Business Loan before applying. It helps avoid rejection and wasting time, money, and effort.  

  1. Gather the Required Documents

Documents are crucial in demonstrating an applicant’s financial capabilities and reliability. They serve as proof of eligibility and the borrower’s ability to generate business revenue and repay the loan on time. Gathering all the necessary documentation beforehand is the easiest way to increase the chances of loan approval. Typically, Business Loan applicants must submit these documents:

  • Identity proof (Aadhaar card, PAN card, etc.)
  • Address proof (Aadhaar card, passport, voter ID, driving license, utility bills, etc.)
  • Financial documents (PAN Card of Firm, Company or Applicant, GSTIN, 6-month bank statement, Copy of the most recent ITR form along with computation of income, audited balance sheet and profit & loss account for the previous 2 years, Proof of continuity of business of 3 years)
  • Proof of ownership
  • Current additional financial obligations

Some secured Business Loans also need documents pertaining to the collateral to pledge. However, in the case of an unsecured Business Loan, there is no such requirement. So, these loans have fewer documents to produce with the application.

  1. Reduce the Debt-to-Income Ratio

The Debt-to-Income(DTI) ratio is a financial measurement that compares an individual’s debt amount to income. The lower the DTI ratio, the better it indicates repayment capacity. Bringing down this ratio before applying for a Business Loan is an excellent idea to increase the chances of approval.

  1. Boost the Business Prior to Applying

Successful running of a business maximises the odds of getting quick loan approval. Lending institutions are more lenient towards applicants already earning enough and generating decent revenue. They might feel more risk by offering a loan to a business facing a financial crunch. Therefore, try to boost revenue in various ways before applying for a Business Loan. For instance, launch a targeted marketing campaign, collect payments from buyers, and bring more visibility to the business to boost revenue and plan the loan application. 

  1. Keep the Cash Flow Running

NBFCs sanction a Business Loan after checking the applicant’s personal and business credit scores. Furthermore, they also check the business cash flow to estimate the applicant’s repayment capacity. The greater the cash flow, the higher the chance of getting loan approval. So, try to increase the cash flow before seeking a loan.

Conclusion

Keep these points in mind before applying for a loan and get the best Business Loan interest approvals. Select a loan provider carefully and pick the most efficient and convenient loan proposition. A good loan accommodates itself to the business needs and offers unsecured capital at competitive interest rates. Moreover, it should approve loans as quickly as possible. You can use the Free Business Loan EMI Calculator available on the website of Clix Capital to discover loan options as per the loan amount and EMIs you need.

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