The pandemic has caused us to face many unknown situations, and uncertain times call for new and innovative solutions! Many women have been able to rise to the occasion, using this time to transform hobbies and seemingly mundane skills into valuable sources of income generation.
Indian women are entrepreneurial by nature. You juggle housework, child-rearing, schoolwork, and your business all at once. In 2019, India had a total of 58.5 million entrepreneurs. Of those, women entrepreneurs comprised 8.05 million (roughly 14%) of those businesses (Economic Times). These were numbers before the pandemic. Since then, women have become more innovative, setting up both formal and informal micro-enterprises that cover a range of consumer needs, from food delivery for COVID-19 patients in home isolation to establishing your production and sale of hand-made merchandise to sell solely through social media and word-of-mouth.
But despite this entrepreneurial bend, 79% of women-owned businesses are self-financed (Economic Times) and remain relatively small in size and scale because it is harder for women to access finance when compared to businesses owned by men. And when funding is available to women, it is usually for informal or micro-sized self-help groups or cooperatives for women in rural India. So how can women-led businesses access affordable finance from a bank or an NBFC at terms and ROIs comparable to other businesses in their sector? Here are our top tips for you!
Know your business inside-out
When you submit a business loan application, lenders will have detailed questions about your business. This is because they need to have a good understanding of your business plan, operations, supply chain, finances, customer acquisition, and staffing to analyze the risk associated with lending to your business. Added to this, the pandemic has made some lenders more risk-averse. This means they’re also less willing to take a chance on businesses that may lead to a loss for them.
So, before interacting with a lender, make sure you have full knowledge about every aspect of your business, know your business plan and numbers inside out, and project confidence! A confident business pitch does half the work for you. If you’re hesitant about your business plan or your numbers, how will that inspire confidence in a lender who is trying to decide on giving you their money? So, confidence is key.
Get your paperwork in order
As a standard practice for all businesses, whether they’re owned by women or men, we recommend you ensure all your business registrations and licenses are up-to-date and valid before submitting the business loan application. In an environment of increased lender hesitancy, this eliminates the possibility of them rejecting your loan request because an important piece of paperwork has expired.
Sometimes lenders will also require a co-applicant to support a women-led business’ loan application. So, to speed up the loan process, you may also want to find a male co-applicant who is in good credit standing to make your application stronger. The co-applicant can be a male family member like your father, brother, or your husband.
Run your business responsibly
File your taxes and pay your tax dues on time. If you have a GSTN, file and pay your GST dues monthly. If you deduct TDS, file your TDS certificate, and pay the TDS collected. And finally, file (and pay) your income tax forms on time.
If you need a higher ticket size loan, have a CA audit your books. Lenders will require a financial audit before they approve your business loan application.
Maintain a good individual and business credit score
To verify your financial history and spending patterns, some lenders will assess your personal credit report in addition to your business report. When we check your eligibility for a business loan, we do a soft pull of their Experian credit score to check if they will meet our basic lender requirements. An Experian credit score of 700 and above is considered good. So, make sure you regularly check your personal and business credit reports and that you remain in good credit standing.
Another aspect of your financial history is your credit utilization ratio. That is, how much of the total credit available to you, you use. A credit utilization ratio of 30% or less is good so remember not to overutilize your credit cards.
Be transparent on your business loan application
A lot of SME business loan applications get rejected because of simple errors or inaccurate information. Remember, most lenders will send someone to conduct a site visit to verify the information shared on your business loan application.
For example, you’re currently living at a temporary address while the property you own is under construction. In this situation, we recommend using the address of the current residence on the loan application. If you chose to use the other address instead because you own that property when the lender sends someone for a site assessment, they will find a half-made house instead of the fully constructed and occupied home you led the lender to believe you own. The lender will consider that willfully withheld information and will reject your application because we were not honest with them.
Don’t let the conversation get stuck on the risk
Every business has risks associated with it. A good business plan will take those risks into account and plan to mitigate their impact. When you finally get the meeting with a lender, don’t let risk drive the conversation.
Acknowledge the risks at the start of your interaction, and then move the conversation along to talk about the opportunities. Flipping the conversation so that it is not all about the negatives will help lenders see that you have considered these risks and have planned for them. It will also help them realize you are also innovative and able to see the opportunities in your sector despite all the risks, making you a more attractive borrower for them.
Have a clear ‘Ask’
Finally, have a clear idea of how much money you need, for how long, and for what. This clear understanding will help a lender make their decision and show them that you have thought about your business, needs, and future business plans.
We know as a woman entrepreneur you face barriers that men do not usually face when they apply for business financing. But we hope our advice that is based on our insights and experience helping thousands of SMEs access funding may be helpful to you when you are applying for a business loan. You can also read CreditEnable CEO and Co-Founder, Nadia Sood’s, advice for women entrepreneurs here.
CreditEnable is committed to making the loan process easier for SMEs in India. That is why our loan application takes less than 2 minutes to fill out, and our loan eligibility check has no impact on your credit score. We are transparent about what KYC and business documents we will need upfront, and our process is 100% digital. All you need to do is fill out the survey, submit your documents, and leave the rest to us!