A Business loan, in general, is a financial offering that helps run a business. Businesses also use the loan amount to expand their business, ease their cash flow, and spend on their capital requirements. Banks, both public and private, and other financing institutions offer these business loans. There is no minimum business loan amount to borrow, and the maximum loan is about $5 million. Let us discuss how to get a business loan in this write-up.
The unique features of business loans
The beauty of business loans is that the borrowers can choose the Flexi facility and mitigate the tenure of monthly installments. It is simple to acquire a business loan by filling out an online form and getting the application quickly approved. Loan seekers could also check their pre-approved offers and get the required funds by mitigating the wait time.
Also, they get to repay their loan amount in easy EMIs that are split over a brief tenure that spans up to 84 months. Business loans also incur minimal documentation with zero collaterals. The online lenders offering SBL are also increasing. This model grew faster, about $12 billion in 2014, as it requires minimum documentation.
Eligibility to get a business loan
Only self-employed individuals and proprietors of Pvt ltd and partnership firms can seek business loans. They should be involved in businesses that involve manufacturing, trading, etc. The other requirements for seeking a business loan are as follows.
- It is mandatory for the business that seeks the loan to have a minimum turnover of about $5000.
- The individual seeking the loan should be in the current business for a minimum period of two years.
- The businesses should have a minimum annual revenue. The business bank statements should be offered to the lender to confirm the same.
- The debt-to-income ratio will be accessed to determine if you can afford the debt.
- He or she should be self-employed.
How to get a business loan in simple steps?
Getting a business loan need not be painful if you are prepared and do a little homework. You can enhance the chances of business approval by ascertaining the business qualification and finding the small business loan that fits one’s needs. Here is the step-by-step guide to getting a business loan in simple steps.
1. Decide the type of loan that you will require to fund the business
You can go for term loans if you want to finance a large project or allocate funds for your business expansion. You can pack back these loans over time with interest. If you need loans to fund your everyday expenses, you can choose to take loans from business lines of credit. This will help to cover expenses such as unexpected repairs, payrolls, etc. You can choose personal business loans if you want to fund a startup..
2. Ascertain if you qualify to get a business loan
Banks, lenders, and micro-lenders offer loans for businesses. Ascertain your credit score, which you can get from many online sources and personal finance websites. Banks generally prefer to offer loans to borrowers who have a credit score of 600 or above. The business should have existed for at least a year to qualify for most small-business loans. Also, most lenders offer loans depending on the business’s annual revenue. The annual revenue can range from $50,000 to $2,50,000 for lines of credit.
3. Determine the loan repayments that you can afford before taking a business loan
It is mandatory to look at the business financials carefully, especially the business cash flow, to evaluate how much you can afford towards repayments of loans every month. The business’s total income should be at least 1.25 times the total expenses so that you have enough cash flow to make the loan payments at their due time.
4. Choose the best collaterals for your loan:
Business loans could either be secured or unsecured. A secure loan should have business collateral such as property or equipment. The lender usually asks for collaterals to seize them if the lender doesn’t repay the loan. Borrowers should understand that putting up collateral is a risky business but are required to get a higher loan amount and lower the rate of interest.
5. Applying for the business loan:
After getting all the parameters mentioned above, you must apply for a business loan. You must analyze many loan options and compare the loan terms, their percentage rate, etc. Of all the loans that you qualify for, choose the ones with the lowest APR and start gathering the materials required for applying for the business loan. You will require information such as the,
- business name and address
- business tax ID number
- business plan
- business loan proposal
- financial statements of the business
- personal details regarding the owners of the company
Many options are left if you are ready to kick start your business with new business ideas and seek business loans to fund the same. We hope to have covered the best ways to get a business loan approved and the filing procedure to help you bring in a lot of success for your online business.