New businesses face a key question while trying to raise money: Get a loan or approach an investor?
The business papers are filled with articles about startups getting funded and raising millions of dollars. The truth is these are the exceptions rather than the norm. Most businesses struggle to raise money for working capital requirements. For those with little or no access to investors, getting a small business loan is one of the quickest ways to keep the business running.
However, having a loan rejected not only starves your business of capital, but it also stays on record and reduces future chances of approval.
Here are 5 simple steps to implement to improve your chances to get a business loan.
1) Get the application timing right
It is important to time the application for the loan in the right manner. Lenders will look at your company’s bank statement for at least the last year (if not more). Applying for a loan just after starting the business may dent your chances of getting a loan.
2) File GST returns regularly
With the advent of GST, many lenders are using this as a key tool to assess loan-worthiness. Make sure to have your tax returns filed accurately and on time.
3) Ensure cheques never go returned
While scrutinizing bank statements, apart from looking at cash flow, lenders look at minor details such as bounced cheques that may reflect negatively on the applicant. Be on top of this and avoid instances of cheques being returned from your bank account.
4) Work on a business plan
At the time of applying for a loan, the lenders will ask you for a business plan with projected financials for the next 1 or 2 years. Work with your Chartered Accountant and come up with a realistic projection of future income. The numbers in this plan should be more than sufficient to meet the monthly loan installments and other business expenses that are to be paid.
5) Look outside of Banks
Banks may provide you with the best interest rates, but they generally have more stringent criteria for lending than others. There’s a long list of Non-Bank Finance Companies (NBFCs) which provide small business loans. The interest rates may be a bit higher than banks, but there are better chances of having a loan approved by an NBFC.