8 Things You Must Check Before Applying for a Business Loan

Micro, Small and Medium Enterprises (MSMEs) having a small business need funds to operate, grow and carve a space for themselves in the marketplace. Owing to lack of funds and still survive & grow in the ever-growing competitive world, MSME may need a business loan.  

The business loan application process is complicated and thus, an MSME needs to assess the parameters before proceeding to apply for a business loan of which 8 things have been detailed as follows: 

Business Plan: 

Business Plan details the realistic ways of the implementation of a business idea to achieve the desired business goals in a defined period. Thus, an MSME should present a business plan which is well detailed, well designed, and well documented. 

A financial lender reviews a business plan to evaluate if the business is viable, profitable, and sustainable.  You might make a mistake when you are starting a business without having a business plan because you won’t know what comes next and how you scale your effort.

No matter if you are starting a Kirana store or a floor cleaning business you will need a strategy to be successful.

Purpose of the loan and loan amount: 

The MSME must state the purpose of the loan and the amount of the business fund needed while applying for small business finance. The purpose should be clearly reflecting the vision of the business. MSME must be able to justify the loan amount needed with a proper marketing strategy. 

Financial Lenders 

Before finalizing a financial lender, MSME should know of the financial lenders in the marketplace offering the business loans, interest rate, charging fees, hidden costs, etc. 

MSME should study and accordingly choose a financial lender that best suits its business needs so that you know how much fund you need.

Documents required to avail a business loan: 

The documents required for a business loan are basic and minimal. MSME should review all the documents to ensure that they are appropriate and as desired by the financial lender. 

Improper documents may lead to rejection of the business loan application or may affect the loan processing time. 

Availability of the Collateral: 

The financial lender prefers secured business loans over unsecured business loans owing to collateral. Collateral acts as a security when the MSME defaults of the loan repayment whereby the collateral can be sold to recover the business loan amount. 

Assessing the financial Statements: 

While sanctioning unsecured business loans, the financial lender scrutinizes the financial statements to ensure that the MSME has a stabilized cash flow and are capable of repaying the business loan.  

Financial statements requested by the financial statement are bank account statement, balance statement, etc. 

Cost of the business loan: 

The MSME should check the total cost of the collateral-free loans such as the business loan interest rate, EMI payable, Business loan repayment tenure, etc. 

Credit Score 

An MSME should have a good credit score to avail a higher loan amount at an affordable loan interest rate. When it’s a new business wherein there is no credit history developed, a credit score of the applicant is reviewed to ascertain that the applicant can repay the loan amount and also to pay the monthly EMI. 

To sum it up, MSME needs to review and ensure that all the above stated 8 things are taken care of before planning to apply for a business loan. 

Frequently Asked Questions