7 Steps To Help You Get A Business Loan During COVID-19
Financing a business today is not as difficult as it used to be previously. One can opt for a business loan from any of the banks or other financial institutions. However, lenders have become more careful while providing loans to small businesses. This is mostly due to the economic fallout caused by the COVID-19 crisis.
Small and medium enterprises account for about 30% of the Indian GDP and nearly 40% of the total Indian export. They also provide employment to a substantial section of both the urban and rural population. This sector has been rightly described as the ‘silent engines’ of the Indian economy.
If you’re wondering how to get a business loan for your SME, a comprehensive guide about the necessary steps will help you make the right decision. Read on.
7 Steps To Get A Business Loan In COVID-Crisis
Let’s take a look at the 8 crucial steps that will answer all your queries about how to get business loans:
Determine The Type Of Loan
Borrowers need to determine the type of business loan they are willing to seek. Lending institutions usually ask the purpose and the type of business loan before sanctioning.
An individual can apply for a loan to start a business. They can also seek funding to meet the daily operational expenses of an existing business. These expenses include salaries, buying new equipment, renting bigger space, investing in marketing, etc.
Make Sure You’re Qualified For The Loan
Before applying for a business loan, borrowers must ensure they qualify for the loan. Borrowers need to focus on two factors to find out whether they are eligible for a small business loan:
- Years of operation: To qualify for many online small business loans, an enterprise must come with one year of business experience. However, banks require at least two years.
- Repayment capacity: Lenders prefer to receive regular repayments. A business owner should make sure they have sufficient cash flow to afford monthly repayments.
The chances of a business loan getting approved depend largely on the credit score of a borrower. Lenders will check the credit report of an individual to assess his/her creditworthiness. Credit reports reveal crucial information about the repayment history or patterns of an individual.
Financial institutions usually prefer loan applicants with a credit score above 750. Borrowers with a high credit score are offered high-value loans at convenient loan terms. If you wish to have quick loan approval, make sure you have a high credit score.
It is highly crucial to have all the required documents to facilitate a smooth and hassle-free loan approval. Banks are very particular about documents when it comes to approving a no-collateral loan. Make sure to provide all the necessary papers required for loan sanctioning.
To avail a business loan, a borrower needs to provide the following documents:
- Bank statements of both business and personal accounts
- of the business
- Government photo ID proofs
- KYC documents
- Legal documents
- Tax audit reports
- Business reports
Compare Among Lenders
Individuals should carry out thorough research to find a lender that is most suitable for them. Each lending institution comes with different eligibility criteria, rules and regulations. There are two sources to choose from: banks and online lenders.
Several online lenders offer instant small business loans with faster approval, minimal paperwork and higher acceptance rates. These lenders can be ideal for those who wish to get a business loan right away without collateral. Borrowers can explore their offerings on apps like KredX.
Select The Right Lender
MSMEs now can opt to choose from a wide range of lending institutions. However, finding the right lender for a business can be quite confusing for many borrowers.
To find a suitable lending institution, borrowers have to carefully check certain crucial parameters. One needs to check and compare the eligibility criteria, interest rates, terms and conditions, etc.
Apart from the conventional lenders, individuals today can also opt for quick business loans from various online lenders.
Check The Cash Flow
Lenders will examine the cash flow of your business to ensure your repayment capacity. Insufficient cash will only hinder the chances of loan approval. The availability of cash will establish the stability of your business to lenders. Hence, you should ensure to have the adequate cash flow to be able to afford monthly repayments.
Alternative Solution: Business Credit Cards
If you want to know how to get business loans, you should also explore the use of credit cards. Recently, credit cards have been increasingly used for commercial purposes. If your business doesn’t require a massive sum of money, you can opt for credit cards. With credit cards, individuals can easily finance several purchases and expenses for their businesses. One can also avail instant overdraft facility to obtain short-term loans from online platforms such as KredX.
However, borrowers have to repay the amount on time to avoid penalty charges.
Small and medium businesses are an integral part of the Indian economy. Small business loans are extremely important for developing the MSME sector. To that end, a borrower needs to have a clear understanding of how to get business loans to enjoy faster approval. Business owners can avail instant collateral-free business loans by exploring several options on online platforms like KredX.