A business loan is a loan taken for the following purposes:
• Personal expenses
• Business expansion for example hiring more staff, investing in technology, purchase of assets
• Working capital needs
o Short term
o Medium term
A loan for business is an unsecured loan, where lenders sanction amounts up to Rs. 50 lakhs without security. These funds don’t come with any preconditions attached to the use of loans.
A major reason for availing this loan is the business loan interest rate. Business loans are given at lesser interest rates as compared to personal loans, and yet they offer similar if not more flexibilities. Getting a business loan takes a little more effort than a personal loan, but following these steps will ensure you can best utilize loan funds for the business. It will also ensure the business loan interest rate is the best.
Here are 5 steps to getting business loans:
1. Estimate the fund requirement:
The first step to getting a business loan is to estimate the funds that will be required. Whether it is for business expansion or for purchase of assets, knowing the amount that the business needs is the most essential part. There is no point in taking a loan for business and realizing the funds are short of the requirement.
2. Prepare a business plan showing where the funds will be used:
This document will be very useful in ensuring you get the loan for business. Estimating the requirement of funds is the first step, but if the loan funds are to be used for a variety of purposes, it is essential to prepare a document showing their usage over a period of time. This will show the lender that you intend to use the funds judiciously.
3. Check financial health of the business:
Before availing a loan, it is important to check whether the business has the capability to repay the loan. It is not advisable to use business loan funds for assets that take a longer term to generate returns. This will lead to capital getting blocked. It is better to take a loan when the business has some free funds to repay the loan as per the schedule.
4. Collect the required documents:
After estimating the fund requirements, the next step while applying for a loan for business is to collect the required documents. This means identity proofs, address proofs, income tax returns, business accounts, etc. The lender will use these documents to assess the loan amount.
5. Find the right lender:
Finding the right lender will depend on the business loan interest rate and other charges, you can select the lender and make the loan application.