What It Takes To Win The Battle For A Business Loan? |
Posted: April 3, 2020 |
Availing a business loan for your small business can be really frustrating, especially if you are availing of the service for the first time and don’t know how to apply for it. As per a few surveys, it is discovered that despite having a few financing options available in the market, such as NBFCS and online lenders, it’s still a battle for small business owners to get access to business loans for their small venture. Well, the increasing amount of options available makes things worse for small business owners to some extent. A number of options available tend to confuse the borrower. Besides, while some borrowers didn’t know why their application was denied, some didn’t even know their application was denied. So, there’s a need for these borrowers to know how they can win the battle for business loans. The following are common reasons why a business loan application is rejected. This will help you comprehend the main reasons to ensure you don’t repeat them in the future.
One of the primary reasons why small business owners in India are disapproved for a business loan is they don’t know where their credit score stands. They need to understand that credit score is one major eligibility criterion for loan lenders as it represents the borrowers’ creditworthiness numerically. And it goes without saying that lenders only lend to the borrower with good credit report and score. Now, if the borrowers know their credit score, they can check whether they meet the lender’s requirement or not. If not, they can first work to increase their credit score and then apply for a business loan. Or they can look for another lender whose requirement for a credit score is the same as his credit score. So, being aware of a credit score will help in avoiding the risk of getting the application rejected. Companies like CIBIL, Experian, and Equifax provide a credit score. Also, every individual in India is entitled to get one free CIBIL score in a year. To rebuild your credit score, you can pay all the dues on time, keep your credit utilization ratio low, avoid opening lines of credit, and keep your old & existing accounts open.
All loan lenders lend their money only to the borrowers they feel are capable of repaying the loan amount. By this, we mean that the borrower should be able to pay the EMI every month, in addition to covering payroll, rent, inventory, and other expenses. So, if the borrower is spending more than what he is getting every month, he needs to solve this problem before applying for a loan. The easiest way to solve this problem is to cut all the unnecessary expenses, have spare funds for emergencies, and invoice promptly. The result must be that the outflow should be less than the inflow of the cash.
Most loan lenders typically not lend money to business owners that don’t offer some security or collateral. In other words, they want some physical property or asset that they can take if the loan is not repaid completely. For this, the borrower can list everything he has and can be put up as security. For collateral, he can include both his business and personal assets. He may also offer his car or home as collateral. Having said that, many borrowers are not willing to hypothecate their property. They either don’t wish to risk the same or don’t have the collateral to pledge. For them, unsecured business loans are available in the market. Many NBFCs and online lenders offer the same, and the business owners can avail of the collateral-free business loans from them.
This is a myth that all the business owners can walk to the loan lenders any time, and they will get funds for their business. It is not right in the real world. The reality is that all loan lenders want to see the track record of the business before lending, such as healthy revenues, positive cash flow, etc. So, it is not that easy to get funding for an early-stage start-up. The minimum years of vintage required by most loan lenders are at least two years. If the start-up is two years old, it can avail of business loans from NBFCs and online lenders. The two years of business vintage will provide ITR, cash flow, etc. to the loan lender as proof to the stability of the business and that it can repay the loan amount efficiently.
If the business owner already has a number of loans running on this name or the organization is already buried in debt from other types of loans, the lenders would definitely be hesitant in lending funds. So, the borrower needs to ensure that he pays all his debts on time as well as maintain a low balance on lines of credit. If he can’t pay the debts early, then he can negotiate with the loan lender.
With no business loan, the loan lender is most likely not to consider the loan application at all. To ensure that the business loan is approved, it is imperative to submit a solid business loan. Notably, the business plan should be updated and thorough. Besides, it should also demonstrate that the plan is based on the thoroughly conducted research. Also, the plan should have elaborated details of the customers (including potential), clear vision and mission, and projected sales, revenue, and profits.
Why is a business loan required? Is it because the borrowers want to buy unnecessary business assets like Apple watch or exotic fish tank? Or to buy an updated piece of machine that will boost sales. The reason to avail of a business loan plays a critical role, and it must convince the lender to grant the loan.
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