A Business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will have to be repaid with added interest. Businesses loans are a form of credit offered by lenders to businesses. In exchange for this money, lenders require repayment of the principal with interest and fees added to it. There are a number of different types of business loans, including Bank loans, Mezzanine financing, Asset-based financing, Invoice financing, Microloans, Business cash advances, and Cash flow loans. A bank loan may be obtained from a bank and can either be secured or unsecured. For secured loans, banks will need collateral security, which may be lost if repayments are not made. While sanctioning loans, the bank may wish to see the business’s accounts, balance sheet, and business plan, as well as study the principals’ credit histories. Many smaller businesses are now however turning towards Alternative finance providers, especially in the case of smaller firms.
HOW TO APPLY FOR A BUSINESS LOAN? :
When it comes to applying for a business loan, it is best to apply for one before you need it. You should assemble the documents and other information necessary to qualify for a business loan well before you step into an office. For securing a loan, you will need to have the following information and documents on hand.
• Credit Score – One of the first business loan requirements for both the company and the owner, is to have credible credit scores. The lower the credit score, the higher the perceived risk, according to the lenders. This is because most lenders believe that past results reflect what will happen in the future. Over time, you can improve your personal credit score by paying all your bills on time and having a low personal debt to credit ratio.
• Annual Revenue – One of the chief business loan requirements for a lender is a clear picture of the trends in your business, especially how sales and cash flow have grown. It is mention-worthy that the qualifications for a business loan depend more on growth in cash flow and less on revenue. Many lenders will also ask for copies of your bank account transactions, so they can confirm cash flows that are reflected on your financial statements.
• Updated Business Plan – Be ready to share an up-to-date copy of your business plan, which includes projected financial statements and a plan of how you will pay the money back. Besides all the financial numbers and documents, one of the critical business loan requirements is proof that the people who help operate your businesses have the relevant experience and credentials to repay the loan.
• Additional Collateral – Every lender wants to reduce their risk to a minimum when making a loan. One of the common ways to do that is for the business owner to provide a personal guarantee to their loan, or pledge additional collateral like personal real estate or other financial resources, in case the business fails to meet its repayments.
TYPES OF BUSINESS LOANS :
Business needs can vary between purchasing assets such as land or leasing a factory/shop or purchasing assets or working capital requirements or basic operating expenses such as overheads or salaries. There are different types of business loans in India. These are Term loans, Start-up loans, working capital loans, loans against property, Invoices financing, Equipment financing, Business loan for women, overdrafts, merchants’ cash advances, and Business credit cards.