There is no easy road to success. Starting up and growing a successful business requires years of hard work. Irrespective of your business size, you might need to infuse capital every time you take a step forward in your business. Arranging for the working capital could be quite a financial strain, especially if your company is bootstrapped and not externally funded. This is where a business loan would come in handy.
What is a Business Loan?
A business loan boosts your business with additional capital to manage the regular working cash flows. It could be of help in case of a business expansion. There could be multiple reasons for a business to require additional funds.
Banks and Non-Banking Financial Companies (NBFCs) offer business loans. The eligibility criteria for a business loan and the business loan procedure may vary among these financial institutions. Considering that, availing of business loans can sometimes be tricky. Despite having a good credit score, businesses may face rejection of business loan applications as financial institutions consider many other factors before approving a loan. You can ensure approval for your business loan by avoiding some common mistakes.
The Top 5 Mistakes to Avoid while Getting a Business Loan :
Let’s take a look at some of the common mistakes you should avoid:
Lack of a concrete business plan
A business plan is one of the most important documents that the lender considers while providing you credit. Before a lender agrees to offer you a loan for your business, it needs to be sure that your business plan is good enough to generate returns.
Lenders usually check the exact amount of credit you need, how you put it in use, and your ability to pay back the business loan. A concrete business plan that can reveal exhaustive details of your business can put forward a strong case for you.
- You must:
Present a flawless business plan with all financial details in place. Your business plan should include a detailed background and nature of your business, with a clear description of ownership structure, management team, and details of their expertise. In addition, you must provide a sensible and concrete reason for borrowing the business loan, along with the execution strategy. The most important aspect of a business plan that the lenders are keen on is the financial aspect.
To include the excel with all the crucial financial details of your business, how you plan to generate revenue and repay the loan within the specified tenure. Such finer details play the most significant role in getting your business loan application approved.
Misrepresentation of your business financial details
Securing a business loan is not easy, especially for small businesses. Some institutions look for years of profitability or some guarantor or clear and stable balance sheets before granting a business loan. So, the financial documents of your business play a crucial role in securing a business loan.
The biggest mistake that most SMEs and MSMEs tend to make is misrepresenting their actual financial status. Showing inflated income and reduced expenses can make the business look profitable but might get you into trouble, and you may end up facing rejection of your business loan application. So, never do that.
Keep your financial documents in order before applying for a business loan. You need to fill in the details of assets, liabilities, income, and expenses of your business, along with your financial details in your business loan application form. Please represent your correct financial status and build up a case as to why you need a loan and how do you plan to repay the same.
To represent accurate details of your business financials. Some lenders might ask for audited financial documents of your business such as cash flow statements, balance sheets, and profit and loss statements. Go ahead and submit those documents. Lenders prefer honesty and not inflated financials!
Choosing the wrong loan product
Plenty of money lending options are available in the market for Medium and Small Scale Enterprises (MSMEs). Some of these are start-up loans, working capital loans, loans against property, equipment financing, and overdraft facility against collateral or securities specifically in terms of fixed deposits with the banks and NBFCs.
The presence of many identical business loan products can confuse entrepreneurs, and they may end up choosing the wrong product.
Do your research well and apply for the right product best suited to your needs. If you opt for an incorrect product, your costs to shift products might be high. Understand the loan options that are available and then go ahead with the business loan procedure.
To look for customized loan options and save yourself from choosing the wrong loan product. Try opting for a loan such as Shriram Finance business loans that are customized to your requirements.
Many SMEs and MSMEs proceed with the business loan procedures without completely understanding the requirements for the particular loan product. The eligibility criteria for business loans are available on the lender’s website.
Be completely aware of the eligibility criteria for business loans to understand if your business meets the requirement. It is also mandatory to have a clear idea of the steps to get your business loan secured in a disciplined way. The business loan procedure can be lengthy and depends on the types of loans. You will have a lot on your list to complete the business loan application process. Failing to enclose all the relevant supporting documents with your business loan application can result in rejection or delay of your application.
To understand the steps to getting a business loan. Opt for a customizable loan such as Shriram Finance business loans. Keep all the relevant documents ready before you apply.
Lack of collateral
Business loans are available in both secured and unsecured forms. Collateral free business loans or unsecured business loans do not require you to pledge any assets as security. However, bigger loans would always require collateral.
Know the difference well before applying. Collateral business loans or secured business loans allow you to use various assets such as vehicles, properties, and equipment as security for availing the business loan. Collateral serves as the safety net and comforts the lender in financing your business. It could get difficult for small businesses, short on collateral, to get higher amounts of business loans. Loans with collateral are cheaper than unsecured ones as well.
To look around for business loan options for SMEs and MSMEs without collateral before applying for a Collateral free business loan. There are options for Collateral business loans as well, but you need to research and shop around for the same.
To wrap it up
In addition to the above list, other common mistakes such as not reading the fine print or loan agreement, forwarding multiple loan applications at a time, and missing out on crucial business information may result in delay or rejection of your business loan application.
Here are few important tips to secure your business loan without a hassle:
- Keep a check on your credit score and maintain a sound financial history
- Present a concrete business plan with business goals stated clearly
- Set your financial projections right with a clear execution summary
- Research and compare the business loan options available to choose the most suitable one.
- Have all documents in place to expedite the business loan process
- Read fine prints carefully before you sign the loan agreement
To sum it up, be aware of the aspects that are considered by the lender while scrutinizing your business loan application and prevent yourself from making common avoidable mistakes. Do not fail to shop around and be organized and thorough in every aspect of your business. With Shriram Finance as your lending partner, you can get customized loans for your small business and streamline your working capital requirement soon enough. Shriram Finance’s quick approval and competitive rates address your needs at the right time.