5 Point Checklist for a Small Business Loan

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The prospect of acquiring a small business loan at present is quite attractive. Agencies that offer loans at low interest rates abound in number. Combine with them the local and State business authorities. A new business owner has no excuse to lag behind in his dream.

Local and State business development authorities along with non-profit organizations provide small businesses loans at low rates of interest.

Applying for them too is an easy job. Most of these lenders require you to submit almost the same information. Each lender will have his own specific requirements. But small business loan applications feature a basic uniform structure.

Here is a five-point checklist to consider if you are someone applying for a small business loan:

Check if you really need a small business loan

This is the first step towards ensuring that your loan application gets approved at the earliest. Assess what your company actually needs. You are about to enter into a financial commitment. And to make it a success, you should know what the funds should do for you.

An honest assessment is sure to be a pleasant surprise for you. Perhaps, you may not need a loan. Eliminating a few unwanted expenses may do the trick. Some of your project may be eligible for a grant from a non-profit organization. One among your client may be worth more than all your other clients. And you may not be using that in your favor. There may be alternatives sources from where you can get the funding your business needs.

Apply for a loan only if you feel that your company actually needs it. This will help you do what it takes to acquire the loan.

The list of a few sources of loan

For almost all small businesses, bank is the only source of hope. Know that the nearest branch of your bank is not the only lender you can approach.

Your bank may have a long list of eligibility requirements. Your credit score may be poor. A company as large as yours may not even is eligible for a small business loan. The best course of action here is to explore other options you can try to get a loan. Your community, a charitable trust, peer-to-peer lending, angel investors, credit unions; your options are endless here.

Submit a practical business plan

Submit a business plan that outlines your goals and your strategies to fulfill them. It should also contain information on how the funds you acquire will help. Such a plan will help you ensure that your choice lender will approve your loan application.

Have a one-page summary of your business identity

Prepare a one-page summary of the identity of your company. It should answer the following questions:

  • How long have you been in service?
  • How many staff your firm has?
  • What is your tax ID number?
  • What is your firm’s average gross revenue?

Done this, download a few bank statements from your bank’s official portal. You can upload them as required when filling your online application form. You should also be informed of all the judgments if there is any on your business.

Know your credit score

Credit score is another factor that influences your success or failure to obtain a small business loan. Rectify errors. Pay all your dues. Having a lower score will at least delay the approval of your loan application.

You should also have a good understanding of how much you need. Lenders generally use a categorization to classify borrowings; good and bad reasons. Buying equipment to boost your business operations, buying necessary software etc. fall in the group of good reasons. The requirements like building an office or financing loss etc. fall in the category of bad reasons.

Practice utmost caution in when stating the amount you need as a loan. Underestimating your financial emergency will defeat the purpose of borrowing. Over-estimating will create doubts in the minds of lenders. They will start questioning your credibility and your business model. This is a delicate line that you have no choice, but to balance.

Documents required to apply for a small business loan

Given below are the documents required along with your loan application:

Common documents

Identity proofAadhar card, driving license etc.
Proof of addressRation card, utility bill etc.
Income proofBank statements of previous two years
Financial documentsITR of last two years along with computational balance sheet
Proof of the continuity of your business  
Proof of ownership of your businessDocuments like proof of ownership of the prosperity.    

For self-employed (private LLC, partnerships etc.)

Identity proof of the Private LtdSales tax, water registration etc.
Identity proof of the individualProof to be submitted for the authorized signatories and about two directors (which includes the managing director) (any one of the following): PAN card, Voter’s identity card, Driving license and Passport

For self-employed (professional)

Proof of Identity of Sole ProprietorshipPAN ID / IT return of the concern or Municipal tax, Water, Electricity bill in the name of the concern
Individual identity proofPassport, Driving license, Voter’s identity card, Photo PAN Card.
Proof of residence address for the Sole Proprietor  

For self-employed persons (non-professionals)

  • Proof of individual identity
  • Proof of identity of the sole proprietorship
  • Income tax returns of three years
  • Sales tax returns of three years
  • Copy of last 6 months bank statement of main banker
  • Copy of periodic stock, age wise book-debt and creditors-statement for latest three months

FAQs

1. How to apply for a small business loan?

Applying for a small business loan at present is quite simple. All you need to do is to follow the steps given below:

  • Choose your lender.
  • Visit the firm’s official website.
  • Fill the online application form.
  • Upload the documents
  • Verify them
  • Receive the loan amount.

2. Will I get a small business loan to start a business?

Yes you will. You may use the eligibility calculator available online to determine whether you are eligible for the same.

3. How much loan will I get?

The answer depends on your loan eligibility. Here too, you can use a loan eligibility calculator to help yourself.

4. How do lenders calculate the interest rate of a business loan?

Lenders use many factors to calculate the interest rate for your business loan. The health of your business, your credit score, the loan amount and your ability to repay are just a few among them.

5. How do lenders determine the loan amount for a business?

It depends on the performance of your business, past loans, your credit score, your income etc.

6. Will my lender allow part-payment?

It depends on the lender you choose. Certain banks let you part-pay your loan. Contact your lender for more information in the matter.

7. How long will it take to get the loan amount?

That varies from bank to bank. Certain firms sanction a small business loan within 24 hours of approving the application.

8. How much is the processing fee for a small business loan?

This too varies from lender to lender. Contact your loan provider to know more about it. Certain lenders may even require insurance protection for the loan taken.

9. Will I get any advantage on interest rate if I pre-pay a loan?

No interest is charged on the loan amount that is pre-paid. Interest is applicable only to the remaining repayment.

10. To how many business loans can I apply?

The higher the number of your loans, the lower goes your credit score. Avoid taking loan more than what you actually need.

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