Steps to Apply for a Loan for Your Business

A business loan can help you take your business to the next level. You can avail one to expand your business, fund latest equipment or simply manage cashflow to optimize operations. However, it is essential to understand the loan application process before availing these funds to get the most out of it. Here is a breakdown of the important steps involved in a business loan application process.
 

Step 1: Asses the Amount of Funds You need

Determine the exact loan amount you require and the purpose, whether it’s for expansion, equipment purchase, or working capital. This helps you with the next step to identify the right type of loan for you and further the best lender for it.

Step 2: Select the Right Business Loan

Lenders offer different categories of financial solutions depending on the specific requirements of the borrowers. Based on the size and scale of business borrowers can choose from various types of MSME/SME loans. The most availed loans include term loans for lump sum amounts, working capital loan for operational requirements and machinery or equipment financing to purchase latest equipment. Apart from this, borrowers can also choose from invoice discounting, letter of credit, overdraft facility, POS loans or other schemes offered by the government for small businesses for their special requirements.

Step 3: Choose the Right Lender

Now that you know which loan to avail, look for the lenders that cater to that special financial need. Evaluate interest rates, repayment terms, any additional charges or benefits across these lenders to get the best deal for your requirement.

Step 4: Plan your Monthly Instalments with a Business Loan EMI Calculator

Before filling out any loan application form, you must also determine the monthly instalment (EMI) amount by using a business loan EMI calculator. Your monthly income should ideally balance the EMI without causing much strain on the usual expenses.

While calculating the EMI on a business loan, the financial institution considers the principal amount of funds that will be borrowed, the monthly interest rate imposed on the borrower, and the total number of monthly instalments that the borrower has to make for repaying the amount.

Where,
P = principal amount
R = monthly interest rate
n = number of monthly instalments

Step 5: Prepare the Necessary Documents:

Once you have chosen the specific financial tool and right lender for your specific requirements, quickly organize the documents required to process your application. The standard documents required are:

a) Loan Application with Correct Details

Borrowers must properly fill out their loan application forms provided by the lender with correct details and necessary information. All the sections of the form must be thoroughly checked by a borrower before submitting the form.

b) Detailed Business Plan

It is necessary to draft a detailed business plan outlining the objectives and growth projections of the company. This reflects the decisions and milestones set by the borrower for properly allocating the resources.

c) Credit Score

A credit score is a three-digit number that rates an individual's creditworthiness and ability to obtain a loan, mortgage, or credit card. The three main credit bureaus are Equifax, Experian, and TransUnion CIBIL. Credit scores are essential in determining the reliability and the creditworthiness of the borrower. Maintaining a positive score is instrumental to securing a business loan.

d) Bank Statements

A borrower may be asked to produce his bank statement of the past 6 months. With the bank statements, borrowers can demonstrate their income stability and repayment capabilities.

e) Income Tax Returns

It helps a lending institution to evaluate whether a borrower has a consistent income source or not which exhibits whether or not the borrower has the ability to pay EMIs on time. Income tax returns of the last 2 years are generally required.

f) Performance Reports

Performance reports highlight the profit margins and the productivity of a company. Organizing the performance reports of the past helps a borrower to establish trust with the lending institution.

g) Proof of Identity

Aadhaar card, PAN card, Voter ID Card, Driving License, or Passport of the borrower are generally accepted as the proof of identity.

h) Proof of Ownership

Borrowers have to illustrate proof of ownership over their companies with Business Registration Certificate, Trade License, Establishment, GST Registration Certificate, or a certified copy of the Partnership Deed Agreement. HUF enterprises may have to submit the HUF deeds to verify the existence of the businesses.

i) Audited Balance Sheet

The balance sheet of an organization helps to evaluate its assets and equity. It can help identify the potential liabilities of a company. A lending institution may ask for a balance sheet of the last 2 years to assess the financial position of the borrower.

Once submitted, the financial institution meticulously examines the documents before approving the loan application form. After the verification stage, the lending institution proceeds to approve the application, and quickly disburses the funds to minimize delays.

Tips to Facilitate the Loan Application Process

Following the factors mentioned below can help companies avail fund without much hassle:

• Select the right financial solution before applying for a business loan.
• Communicating with the lending institution to select the suitable category of business loan can be a game-changer for several companies.
• It is essential to submit a properly filled loan application form to avoid delays in processing or even rejection of the application.
• Submitting updated documents, along with a carefully drafted business plan, facilitates the verification procedures.
• Maintaining a good credit score helps a borrower to build trust with the lending institution.
• Clear off any existing debt for improving your borrowing capacity.
• Applying for the loan online can speed up the loan application process. This allows lending institutions to quickly disburse the funds once the documents are verified.

By carefully assessing the loan amount required, selecting the right financial solution, and organizing essential documents during the verification process, companies can significantly accelerate their loan application process.

At Arka, we ensure a streamlined loan application processes to help the borrowers quickly avail funds at their convenience. We offer favourable interest rates and repayment terms to help you get ahead.