Today, India becomes the most emerging market for the world economy. The country’s growth increased due to its wide micro, small and medium enterprises. Small and micro-enterprises play a very important part in the growth of the Indian economy by contributing to GDP and generating more employment opportunities. After demonetization, our small and micro industries suffer from the lack of capital and it’s a disadvantage for our economy. At that time India’s government helps this sector and open some Loan schemes for its benefits. As per practice, most of the small business loans are taken by traditional and alternative lenders. This is one of the tough tasks for small business to get the loan but they can apply to banks or financial institutions such as credit unions for commercial loans.

Why need to get a loan?

The extra capital helps to boost your business and scale new heights with profits and increased competitiveness. There are such needs occur to deal with it:

1. Cash flow increment,
2. Lease big office premises,
3. Upgrade latest plant and machinery,
4. Increase working capital,
5. Research and development,
6. Maintain and stock up on inventory,
7. Raw material purchasing,
8. Take on bigger projects and increment in the scale.
9. Raw material purchasing,
10. Expansion of office branch.

Steps – How to get a loan for small business?

Here in this article, I explained some of the key steps of the lending process that will be helpful in getting a small business loan such as:

1. Analysis of the loan amount and it’s needed:

It is obvious that the small business owner will aware of the reason for the need for loans and the amount they needed. If the small business is a start-up then the owner has to identify and analysis the amount of loan should be taken and in which field it will be used.

2. Available loans for small businesses:

What type of loan is favorable for your business that is depending on your business need, interest rate, and is it short term or long term. Such as small business line of credit is a short term have lower interest rate and best for managing company cash flow and on annual renewal time if you don’t renew it than you can do the full payment at that time. Account receivable financing, working capital loan, term loan, administration loan, equipment loans, etc.

3. Research about the fund resources and lenders:

Due to globalization, now there are lots of options for getting the fund. You just need to go on a simple online search and personal contacts. In simple terms, the various types of lenders are such as direct online lenders, commercial banks, Non-banking financial (NBFC), cooperative banks, institutional lenders and peer to peer lending.

4. Analysis of your company credit score and risk profile:

lenders before giving loans look at the various factors of the business and if they are satisfied with the company’s credibility to repay the loan and market goodwill of the business. So before applying for the loan, you should carefully review the factors such as credit report or score, outstanding loans and debts, clean payment history, existing loans, sufficient assets, and experience in operating business, management team and promoters, investors of the company.

5. Stability in financial statements:

Your financial statements such as balance sheet, profit and loss statement and cash flow is deeply reviewed by the lender. They analyze cash flow, gross margin, debt to equity ratio, account payable, account receivable, EBIT, net profit before considering your loan application. And most important these statements should be audited or reviewed by the certified public accountant.

6. Enclosed information with the loan application:

With loan application you should enclose detailed information and documents of your business and these must be organized and complete for reviewing. The needed documents are dependent on the type of loan, the documents are: company legal structure, name of the business, federal tax ID, list of their management team financial statements of the current year with past 3 years statements, projected financial statements, IOC and state filing for the company, insurance policies, requesting loan amount, credit score, business owner’s financial statements and much more.

7. Enclosure of business plan:

If you want to get success in loan application then you have to present your best business plan. The business plan States that how would you repay the loan amount without default, the management team is experienced and use the loan amount in the proper way.

8. State the loan amount and security against the loan:

The lender will definitely want to know that how much fund you needed and how to use it or for which cause you need to borrow a amount. After that, a lender always want to be sure before providing any loan that is the borrower unable to repay the loan. In this situation, the business owner can give security interest on the business assets for the satisfaction of the lender

9. Present your presentation in front of lenders:

In the next steps, you should prepare a narrative presentation with all the financial statements, spread sheets, charts and graphs to make it more impressive and easy for the lender to take a final decision on your loan application. You have to present yourself as a more concise, succinct and organized borrower.

10. Analysis of the business loan conditions:

Before getting a loan the business owner should be confident about the loan and the enclosed conditions attached with the loan approval and compare it with alternative lenders’ conditions. You have to be sure and deeply review the lender key terms such as interest rate and the period of the loan, payment of interest monthly or annually, principal due and settlement, loan origination fee, hidden fee or charge, the imposed operating covenants, the defaulting circumstances, security information, etc.

As the above said there are many types of lenders who are providing small business loans. You can get success in obtaining a loan followed by the above-said steps. These steps helps you to know what these lenders review and requires and after fulfill all the requirements it is easy to get a successful loan.