Running a business is all about growing, expanding in the pursuit of higher profits. But, to grow, an organisation needs finance. Securing a business loan from lenders can be challenging. Proper planning and preparation is required within an organisation before it applies for that crucial loan to further its interests.
Applying for a business loan should be a well-thought-out initiative that perfectly matches with the plans for your business. For a business owner the preparation should start much before the actual application of the loan. A step-by-step process needs to be followed to ensure smooth processing of the loan application.
Business Plan
Ajinkya Prasad, a garments manufacturer in Gujarat, extensively researched the process of loan approvals when he had set up the company. Anticipating increased sales, he knew that his growing business would require a loan at some time in the future. He realized that a lender would want to know everything about the company before sanctioning a business loan. Some of the things that lenders look out for are the company staff strength, repayment capacity, revenue stream and the owner’s financial track record.
They also take into consideration the products and services offered by the company and whether they are legal, and make a sound business case.
Documentation
A well-documented and detailed record of your company’s financial past plays a significant role in the loan approval process. Some of the documents required for business finance such as balance sheet of the company, cash book details, profit and loss statement, purchase records, etc., are reviewed by lenders to gauge the income and profit earning capacity of your business.
Business Credit Store
The importance of this measure cannot be stressed enough. In the case of Ajinkya, he was especially careful to get this right, from the initial stages of his business. He maintained a credible credit score throughout to avoid any rejection of his loan applications. For this, he made it a point to take out small loans and repay them immediately from lenders that reported to the credit bureau. This helped his business to get a good credit rating by the time he needed proper financing. This further helped him to secure an affordable interest rate on his loan.
Research
It would be ideal if the business conducts thorough research into the field that it wishes to deploy the borrowed funds in. A sound understanding of the sector and accurate knowledge of the plans that the business has with the loan, helps the banks make a favourable decision. It also makes for a positive impression in the eyes of the lender, as they get the sense that the borrower knows what he is doing.
Conclusion
All the points mentioned above, if followed, may lead to a hassle-free loan approval. As we learn from the example of Ajinkya, the secret is to help the lenders get a clear idea about your business’s income and repayment capacity. A comprehensive roadmap of the direction you wish to take with the loan amount also works in the business owner’s favour.
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