What is a Business Loan?
A Business Loan is designed by the financial lenders to cater to the fund demand of the company desired for its Initial capital, working capital needs and everyday expenses.
A company might select a secured business loan which is a business loan with security/collateral or unsecured business loan which is a loan for business without security.
What are the things Banks wants to know before approving a Business Loan?
Following are few of the important factors considered and evaluated by the Bank while approving a business loan:
1. Credit Score:
This is the foremost necessary factor considered by the Bank while approving the business loan particularly if its unsecured business loan, new business loans or small business loan.
A company needs to check its credit score before applying for a business loan because it determines the creditworthiness of its business.
2. Business Plan:
A company must ensure to present a detailed, well-designed and well-documented Business Plan to the Bank. A business plan is whereby realistic ways to achieve a business idea is stated. It is important to show the bank that your business has a solid business plan and you have a strong previous track record of performance. All this helps in convincing the bank that you don't really need their money, but if you had it, here's what you could do with it.
Business plan is crucial for the bank to evaluate the feasibility and sustainability of the business ideas presented.
3. Purpose of Business Loan:
Banks need to know the purpose of the business loan applied. You as a business owner should know beforehand how you are going to use the business loan amount. Without proper calculation about the use of the business loan, the lender might hesitate to approve the business loan if in case it is found that you do not have a clear vision and operation efficiency. Be very particular and specific about how much money you will need, and what you are going to do with it and also analyze how you will repay the same, considering the business loan EMI.
4. Cash Flow:
Banks evaluate the nature of the business operated by the company; the income generated by the business because it reflects the business performance as well as its sustainability.
Thus, it is essential for a company to ensure a steady flow of income and cash flow while applying for an unsecured business loan/new business loan.
5. Collateral:
For a bank to sanction a business loan, it is mandatory to know about the business loan repayment capacity of the company. If it is a secured business loan and the company defaults on the business loan repayment, then as one of the aspects of business loan eligibility, the collateral can be used to recover the business loan amount.
FAQs:
1 How is the business loan eligibility determined?
Business loan eligibility can be determined by having a good credit score and having clear records of the past business loans if availed.
2 How is Business Loan EMI calculated?
Business Loan EMI is the equated monthly instalment payable by the company as per the business loan interest rate and it can be calculated by using the business loan EMI calculator.
3 How to apply for business loan?
It is very easy to apply for business loan. A company just needs to upload all the documents required for business loan online along with the duly filled application form and within a few clicks, the business loan can be applied.
4 What are the documents required for business loan?
The documents required for business loan are identity proof, address proof, business registration copy, rent agreement copy, ITR, passport sized photo, etc.
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