Here are a few things you can do to prepare your business for a business loan before submitting your application to the lender. These actions will increase your attractiveness to lenders, indicating that you run your business responsibly and that you’ve planned for the loan.
If your business is currently in a negative sector due to COVID-19, like tourism and hospitality or education, and lenders are not currently lending to your sector, we recommend you follow the steps mentioned below to prepare your business for when lenders begin to lend into your sector once more. With India’s vaccination drive going strong and our current active COVID cases falling daily, the economy will likely bounce back soon, meaning lenders will also being lending to SMEs across all sectors again.
1. Have a thorough business plan ready to share with the lender
We’re sure you prepared a business plan before you started your business. As your business is already operational, and you’ve had a few years to understand the ins and outs of the market, revisit your business plan and update it as needed.
Make sure the plan is professional and inspires the lender to believe in your vision. A good business plan must include a clear strategy for the future (where your business is heading), a solid marketing plan, and a detailed financial forecast.
Finally, your business plan must include both instances of opportunity and risks associated with the business so that lenders feel confident in your ability to mitigate and manage the risks if they arise. This lets them know you are an informed business owner and will increase their trust in you.
2. Ensure you have all the necessary required documents
In addition to your business loan application, you will also need to submit additional business documents to the lender. These documents help a lender verify your business information and your business vintage (how old your business is). Supporting loan documents vary from lender to lender, but in general, they include:
- Gumasta Dhara
- Partnership Deed/ Limited Liability Partnership Deed (in case of a Partnership firm)
- Shop and Establishment Act Certificate
- Memorandum of Association (MOA) and Articles of Association (AOA) (in case of Private Ltd. firm)
- Shareholding pattern (in case of Private Ltd. firm)
- Company’s PAN Card (in case of Partnership/ Private Ltd./ LLP)
- Goods and Services Tax (GST)/ Value-Added Tax (VAT) Certificate
- Importer-Exporter Code (IEC) Certificate
- Food Safety and Standards Authority of India (FSSAI) License
- Certificate of incorporation (COI) (in case of Private Ltd. firm)
- 2-3 photos of your establishment to verify the business activities.
Finally, lenders will also require the bank account statements for the last 12 months of any accounts you use to conduct business transactions. They will also need your GST filings, Tax Returns, and your audited financial statements (if the loan you need is more than Rs. 20L).
3. Ensure your business is in good credit standing
Lenders check your business credit report when you apply for a business loan, as well as the credit report of all owners involved in the business.
At CreditEnable, we do a soft pull of your Experian credit score to check if you meet our lender eligibility. Our lenders prefer to lend to businesses with an Experian credit score of 750 or above.
Check your business loan eligibility for free with CreditEnable today to learn how likely you are to get your business loan application approved. If you don’t currently meet our lender partner eligibility, we’ll tell you upfront and recommend how you can improve your credit standing to get the business loan you need in the future.
Every time you apply for a business loan directly with a lender and they reject your application, it negatively impacts your credit score, and you may not even find out why your application was rejected. So, we help our SME customers check their eligibility before they apply for a business loan to avoid their credit score taking a hit, and help you understand why your application was rejected.
4. Repay the debt you already owe on time
If you’re currently paying off any loans, make sure you’re paying the EMIs on time. Lenders want to see your current repayment behaviour to check if you’re fulfilling your EMI obligations on time. This increases their trust in you and increases your chances of getting the business loan you need to grow.
If you’re in arrears on any debts, you will need to get your repayment back on track and display good financial behaviour for at least 36 months before a lender agrees to lend to you. Lenders take on considerable risk when they lend to a business, whether it’s a secured or an unsecured business loan. So, they want to make sure businesses they lend to can meet their loan obligations on time and manage their day-to-day expenses simultaneously.
5. Maintain a certain minimum bank balance in your business bank account
If you’re applying for a business loan of about Rs.1-5L, you should have at least an average bank balance of Rs. 10,000 to pass the lenders’ minimum loan eligibility. Lenders check your minimum bank balance to assess whether you will be able to pay the monthly loan EMIs in addition to your regular business expenses. So, when they ask for your 12-month bank statement, they’re not only checking your cash inflow and outflow, they’re also checking how much reserve cash always remains in your accounts.
6. Ensure you have a Current Account for your business
Make sure you use a current account, not a savings account for your business. Lenders need to differentiate between your personal and business expenses, and they can’t do that easily if you use your savings account for your business.
If you don’t already have a current account, make sure to open one before applying for a business loan. You will need to provide your lender with some form of business registration to open the current account, so make sure you’ve registered your business beforehand as well. We recommend contacting the lender you are currently banking with to enquire about their requirements to open a current account for your business.
At CreditEnable, our goal is to help SMEs find the right business loan at the right time to achieve their growth potential. We work with over 25 lenders in India to help our SME customers across the country access 100% digital unsecured business loans in 2-3 days and secured business loans in about 7 days. We’ve made the business loan process easy and quick so that you don’t have to waste too much of your time worrying about which business loan is right for your needs and which lender will offer you the best terms.
With our technology platform, you spend only 2 minutes telling us about your business, we check your loan eligibility, and if you meet our lender criteria, you send us your documents. We do the rest of the work for you!
Zero Hassle. Zero Fees.
Business Loans. Enabled Simply.