A successful entrepreneur is not only the one who can nurture an idea into reality but also raise capital. Ideally, no business can be set up or expanded without cash flow. Small business owners often face financial difficulties which make it difficult for them to sustain in the long run, thereby making most of them give up on what could have been a game changer for them.
Simply saying, a small business loan is a debt that the company is obligated to repay according to the loan’s terms and conditions. It’s provided to small businesses for various purposes which can help it grow, fund new research and development, enhance sales and marketing, help in expanding new territories and much more.
Financing provided by the government is preferred because of lower rates available under government schemes. There are many public sector banks which work along with various government organizations to provide loans under government-aided schemes. Some of the prominent names are State Bank of India, Andhra Bank and Bank of Baroda.
The Indian government has also introduced over 50+ startup schemes in the past few years. India is in third place behind US and Britain in terms of the number of startups. This includes startups like Flipkart, Snapdeal, Ola, Hike, Paytm, Zomato, and Quikr.
Some key points to remember before applying for a small business loan:
Choose the right loan that suits your requirement: There are multiple types of small business loans available. The options vary depending on your business needs, the length of the loan, and the specific terms of the loan.
Find the best lender from the available options: One can get small-business loans from several places, including banks, nonprofit microlenders, and online lenders. These lenders offer products including term loans, lines of credit and accounts receivable financing. Once you determine which type of lender and financing vehicle is right for you, compare two or three similar options based on annual percentage rate (total borrowing cost) and terms. Choose the one with the lowest annual percentage rate of interest.
Review your credit and risk profile: Make sure that your credit score does not fall below the prescribed threshold. Apart from this lenders also consider that you need to have been in business at least one year to qualify for most of the small business loans. Many online lenders require minimum annual revenue. Look carefully at your business’s financials to comfortably repay your loan each month.
Gather your documents: Along with the application following documents are also required
Business and personal tax returns
Business and personal bank statements
Business financial statements
Business legal documents (e.g. articles of incorporation, commercial lease, franchise agreement)