What Steps Should You Follow to Get a Business Loan?

Obtaining a business loan can change the game for your business. If you have just commenced a new enterprise or are looking to expand an existing one, a loan can get you the required financial backing. However, before you approach any lender, keep in mind that it’s best to understand the process and needs of that particular loan.
If you’re wondering, “How can I get a business loan?” this article is for you. The following is a step-by-step guide on how one should go about securing a business loan in India:
Step No. – 1. Assess Your Loan Requirement
Before asking yourself how to get a business loan, first, figure out the amount required and where it will be used. Do you need funding for operational expansion, equipment purchase or working capital management?
It is important that you understand what you require to obtain the appropriate type of credit facility.
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Working capital loans – For day-to-day business expenses.
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Term loans – For expanding or upgrading your business.
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Equipment loans – To buy machinery or other fixed assets.
Step No. – 2. Check Your Eligibility
There are specific eligibility conditions for lenders in India, including banks and Non-Banking Financial Companies (NBFCs). Normally, essential MSME loan criteria would likely involve:
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Credit score – Lenders prefer a credit score of 750 or higher.
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Business history – A business must have been operational for between 2 and 3 years.
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Annual turnover – In most cases, banks would require an INR 10 lakh turnover or above, depending on the type of loan.
Furthermore, if you are applying for an MSME loan, you must meet some eligibility criteria. For example, it should be registered under the Ministry of MSME. These loans usually attract lower interest rates and are disbursed faster.
Step No. – 3. Prepare Your Documents
Bring together all documents that you will require after you’ve understood your loan needs and confirmed your eligibility. These normally include;
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Proof of Business – Registration particulars, licenses and permits.
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Financial documents – Balance sheets, profit and loss accounts, income tax return (last 2-3 yrs).
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Identity proof – The business owner's Aadhar card, PAN card, etc.
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Bank statements – Usually for the past 6 months.
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Collateral (if applicable) – Property or equipment backing loan.
Step No. – 4. Choose the Right Lender
You can make loan applications to:
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Public sector banks – These banks charge lower interest rates but may have stricter MSME loan criteria and longer processing periods.
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Private sector banks and NBFCs – These lenders have faster approval rates but usually levy more expensive interest rates on loans.
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Government schemes – For beneficial schemes such as MUDRA loans and CGTMSE (Credit Guarantee Fund for Micro & Small Enterprises) by the government, it may be advisable to avail of government schemes.
Step No. – 5. Apply For the Loan
The next step is to make your application after selecting your lender. The application method varies online and offline, depending on the lender. Normally, the online process is faster and more convenient.
Here’s a summary of what you need to do:
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Online application form – Complete with details including the amount, purpose and history of the business.
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Submission of documents – Upload scanned copies of required documents
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Verification process – The lender will verify this before moving to the next step
Step No. – 6. Loan Approval and Disbursement
The financial institution will evaluate you as a person upon receipt of your application for financing and assess your financial position. This means checking your creditworthiness business viability and, most importantly, scrutinizing some mandatory documents.
Approval
If your application meets the necessary requirements, an approval letter is issued.
Disbursal
Once approved, money for the loan will be deposited into your business account with a time lag, often taking a few days to several weeks, depending on the lender and type of financing.
Step No. – 7. Repayment
For reimbursement terms, creditors offer different types of payments. The following are some standard payment schedules:
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EMIs – An agreed amount of cash will be paid every month until the borrowed amount is completed.
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Balloon Payments – A balloon payment refers to a large payment that is due at the end of a loan term after a series of smaller regular payments.
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Ensure you can manage the repayment term as per your business status.
The Bottom Line
Getting business loans in India is not so complex after all. One should follow these steps to make everything simple. Check out the MSME loan criteria if you are interested in MSMEs because of their unique advantages, like lower interest rates and quicker processing time.
Before starting, determine your loan need and eligibility. Find all needed documents, and then select reliable lenders. Finally, manage your repayments upon approval and see the growth of your business!
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