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Whether it’s operational expenses, funds for a new project, or marketing campaigns, a business will need capital to run smoothly and to enter its next phase of growth.
And during such moments, a business loan always comes in handy. However, you will need to make sure you take the right steps as you apply for one to ensure your loan application is approved. Here are some handy tips:
Once you’ve decided to apply for a business loan, you must check the lender’s website for the kind of loan offerings because there is no one single ‘business loan’. For instance, IDFC business loans come in the form of unsecured business loan, working capital loan, micro business loan, secured loan against property, and more.
All these types of loans come with their benefits but do they meet your needs and requirements? If not, you could end up with an amount that’s quite lower than what you need or end up paying high interest for a large sum.
One of the most common reasons for a business loan rejection is an error or lack of documentation. If that happens, you will have to start from scratch once again. While photo identity and address proof are a given ask, you may also need to furnish proof of business, income proof, GST records. Please read the application form and the list of required documents carefully before you submit your application. Doing so will demonstrate that you’re a responsible borrower.
Businesses too need to prove their creditworthiness like individuals do when they apply for a personal loan or a housing loan. In this case, it’s their CIBIL rank and Credit Report - A document that signals the financial health of a company. Some of the factors that influence the rank include credit utilisation ratio, payment history, outstanding debts, etc.
Along with this, banks will consider your credit score as well. So, make sure to check the scores and ranks before you apply for the business loan. A wrong score can get you a loan with a high interest rate or in a worst-case scenario, banks may reject your loan application.
You may have a specific reason to opt for a business loan or it could be for general reasons but what you should know is the amount you need - keep it realistic. An amount too big or small, when compared against your business, can raise eyebrows. So, take your time and your reasons for seeking this loan into account, decide on the right amount, and then approach the bank.
Banks or lenders in general are concerned about repayment when they sanction a business loan. So, they not only look at the credit scores and ranks but also at your business's cash flow. The higher it is, the more the lender trusts you to repay the loan and greater is your chance of seeing your loan application approved. So, double or triple check your cash flow statements before applying for a business loan.
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