Borrowing a Business Loan for the First Time: Here Are a Few Things to be Aware of

You need money to do business. There are two ways of bringing money into the company. One way is to infuse your funds, also known as capital. The alternative is to Apply for a Business Loan from a bank or a financial institution.

The Business Loan option

Banks are ready to offer Business Loan to start-up entrepreneurs and existing businesses. However, you should be aware of these simple things before you approach banks for loans.

·         Know your business

Banks would like to know what you would do with their money. You should have the answers ready. You can expect the following questions from the banker while going through your application for a first-time Business Loan.

  1. What is the nature of your business and its scope in the industry?
  2. Who are your prospective clients?
  3. From whom do you propose to get the supplies from?
  4. How much credit are you going to give your clients?
  5. Do you have any prior experience of handling this business? OR, are you well equipped to handle this business?
  6. What will be your stake in the business?
  7. How do you propose to use the loan and what are your plans for repayment?

·         Banks are cautious

Banks are ready to lend, but they are cautious. The banks usually seek collateral if the exposure is significant. You have options like availing Business Loans covered by the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). However, you should know the hidden charges in availing a loan under the CGTMSE scheme. It is better to go with collateral. Banks are also more comfortable dealing with business loans that have collateral.

·         Have your Project Report ready

You are approaching the bank for getting a Business Loan. Naturally, you should have your project report ready with you. It offers the banker a clear view of what you wish to achieve. Hire a good accountant and prepare a realistic project report. It is the perfect way to explain your point of view to the bank. Your project report should include the following points –

  1. The nature of your business
  2. Your expertise on the subject
  3. Your contribution as capital/margin money and its sources
  4. The amount you seek asa loan from the bank
  5. Purpose of the loan
  6. Your plans for repayment
  7. Collateral offered if any
  8. Projected financial statements

·         Be realistic with your projections

New entrepreneurs have a habit of overestimating their capabilities. Remember, it takes time for a new business to break even. Keep these points in mind when you prepare the projections. You should be able to explain the projections to your banker.

Bring in your share of the margin as your capital. Banks usually grant up to four times your net worth.

·         Build up a good credit score

You are applying for a Business Loan for the first time. However, you should build up a good credit score before you apply. Banks give great emphasis to the credit scores. It is better to build up a credit score by using Credit Cards sensibly. Make regular payments on your card bills and build up your credit score.

·         Keep your documentation ready

Banks rely on documents alone for approving your Business Loans. Keep these following documents ready –

  1. KYC Documents (ID proof and Address Proof)
  2. Business Constitution Proof (Proprietorship, Partnership, Joint Stock Company)
  3. Your GST and other registration certificates
  4. Your Business projections
  5. Your bank statement to prove your credibility
  6. Quotations for machinery/equipment
  7. Margin requirements

·         Useful tips

Keep these points in mind while applying for a Business Loan. Your relationship with the lender is essential –

  1. Make your repayments on time
  2. Prepare your annual budgets and maintain your books of accounts
  3. Monitor your business’ financial health
  4. Have a proper debt collection policy in place
  5. Analyze if you can take new loans
  6. Maintain good relations with your customers and lenders
  7. Have a proper cash flow forecasting policy
  8. Opting for a loan with collateral is better than going for CGTMSE coverage
  9. Pay your taxes and other statutory liabilities on time

With these tips, availing a first-time Business Loan is easy. Building up your credit rating is essential to your further growth in the business. You need to maintain a long-term relationship with your bank. Your business loans are the best friends you can have in the industry.

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.

Talk to our Loan Specialists toll-free at 1800 103 4004 to know more about our products and offers.

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