Capital cost and operational costs are the key factors in running any type of business. For startup companies, business loans can be availed from commercial banks or financial institutions. This will help the owner to operate the business until it gains stability. The loans can also be availed for expanding or scaling up an already existing business. If you are just starting a new business, then you may need to produce the detailed business plan and other related documents for validation.

Business loans can be categorized as credit loans, instalment loans and unsecured loans. These loans can be leveraged to purchase new equipment, order raw materials in bulk or take up a bigger work space for business. The loans can be issued for a certain period of time with a fixed interest rate and repayment schedule.

Validation:

The approval is usually based on aspects like profit, cash flow/turnover, type of business (single ownership, partnership, Public Ltd or Private Ltd), business track record, etc.

Eligibility:

The validation and approval criteria depend upon the type of business and bank policies.

Below are a few important tasks you should do before applying for the loan:

  1. Analyze your business needs – decide the purpose of the loan.
  2. Calculate the time period for which the fund is required.
  3. Do a comparative study of bank loans in your area.
  4. Discuss the details with a reliable person in the bank.
  5. Enquire about approval process and start preparing the necessary documents.

It is important to maintain a good credit score if you are starting a new business. On the contrary, if your business is already established, you have to produce all financial statements and business transaction reports for last 3 years.

General list of documents required for applying a business loan:

1) Loan application form

2) Self attested documents like Pan card copy, address proof, business establishment certificate, etc

3) Income Tax return documents for previous years

4) Business turnover reports produced by the CA

5) Bank Statement

The borrower needs to have a clear-cut idea of the fund utilization inorder to establish a trust with the lender (bank). A detailed statement of expenditures needs to be shared with the bank whenever requested. It is advised to do a thorough market research to choose the best suitable type of loan for the business before fixing a deal. There are short-term and long-term loans available for business needs. If the turnaround time is quick, it is better to take a short term loan but if it is slow, then go for a long-term business loan. Timely repayment of interests and EMIs can help the borrower to get further loan credits from the lender.

A good rapport with the lender can help the borrower in getting benefits like funding incentives, extension in payment window, EMI reduction for the loan, etc. Always maintains transparency in all business deals with the lender. Once you convince the lender about the genuineness of your business plans, the remaining process would be smooth.