If you run a business, you will need funds to finance your working capital needs or to grow your business. One of the easiest ways to get the funds is to avail of the collateral-free business loan offered by various financial organizations.
However, getting a business loan in India is not an easy task. Therefore, it is important to follow these tips to ensure your approval for a business loan. Here, we have provided seven tips that will help you acquire a loan.
- Decide your business loan’s purpose
Before you approach a lender, you should be clear as to why you are applying for a business loan in India. Do you need money for a new purchase? An expansion, or do you require more working capital? You should have an answer to this question. Once you know your requirement, you will be able to apply for the required fund and avoid under or over-borrowing.
- Early preparation
Success does not happen overnight; if you have not maintained your business from day one, your company may not be ready for a business loan approval. You need to steer your business in a profitable direction if you wish to apply for a business loan someday. Lenders usually focus on two main areas: business profits and personal finance. Hence, before you apply for a loan. You should check your-
- Credit score; improve your CIBIL score if it is less than 685
- Check the business loan’s eligibility of your prefered lender
- Organise your business’s financial records
- Pay off any outstanding debts
In addition to the above, you may also be ready with the required documents such as business ownership, financial documents of your business, bank statements, KYC documents, etc. Once you are prepared with all business loan documents, it will enhance the chances of approval.
- Select the right lender for you
Research as many lenders as you can. You should not select the first lender you see. Check as many lenders and select one based on the interest rates and EMI options that shall best suit you. Research your prospective lender’s specialisations, terms and conditions, offerings, and other details. You must select a credible lender who offers you the best deal. Leading financial institutions such as Bajaj Finserv offers a high-value business loan with minimal paperwork and requires no collateral.
- Know all the options available to you
Decide on the type of business loan by considering all pros and cons and determining whether a particular loan will meet your needs. You must make an informed decision. Every lender has different loan terms, interest rates, and fees. If you know all your options, then you can make an informed and smart decision.
For example, if all you want is working capital, then you may ask for a line of credit. It is often approved quickly, and you can use as much money as you need when you need it.
- Research Government Schemes
The Indian government offers many schemes for start-ups, such as Stand up India, MUDRA loans, and more. Start-ups, MSMEs, and SMEs also get various tax benefits under the IT Act, such as repayment flexibility, concessions in the interest rate, and other tax benefits.
- Determine your loan tenor
It is advisable to select a loan that has repayment flexibility of up to 7 years, especially if your business is new. If you have an extended repayment timeline, you spread your loan over a long period of time and repay it easily in affordable EMIs.
- Tax benefits
Repaying a business loan means you have to pay interest on the principal amount as well. Our government offers tax rebates to entrepreneurs, so they do not suffer a heavy financial load. You can deduct your business loan interest from your income. This will reduce your income, thus reducing your tax bracket. However, the principal amount of the business loan is not eligible for any kind of tax refund or rebate.