“The liquidity crunch is one of the most significant hurdles faced by entrepreneurs in the present day economic environment. Entrepreneurs with even the most innovative and path-breaking ideas are struggling to keep their projects afloat. Starting a new venture is already a tough task but sustaining it, in the long run, is even tougher. Every business requires a steady flow of income to manage the smooth functioning of its operations and ensure long-term growth.
For this, the business owners require access to a source of funding to manage their daily functions and honor their financial liabilities on time. The requirement for funding is even more essential for small business owners as they only have limited funds of their own and to ensure continuity of their business need to be borrowed funding.
Usually, most banks and nbfc in India extend the facility of small business loans to their customers. But due to the precarious state of the banking sector in India, banks are becoming very strict regarding sanction of small business loans. If you are a small business owner looking for a collateral free business loan, here are five tips that will significantly improve your chances of getting a small business loan for your enterprise: –
- Perform a Credit Score Evaluation: – When you apply for a collateral free business loan, the lenders will most certainly perform a credit score check (CIBIL Score) for you as well as your business. It is advisable that you perform a credit check by yourself and check your credit score. Any score of 750+ on CIBIL is considered good, and it significantly improves your chances of getting the loan. If your credit score is below 750+, then it would be wise to delay your application for a few months and work towards improving your credit score. Discuss with a financial expert regarding the various strategies that you can use to improve your credit rating, and you must pursue them.
- Create a Business Plan: – You must prepare a comprehensive business plan covering all aspects of your business and your funding requirements. It would be advisable to take help to take help of a finance professional such as a Chartered Accountant to prepare the business plan along with projected financials. As you would be applying for a collateral free business loan, the lenders will be assessing your application based on your projected financials only. Any discrepancy can jeopardize your chances, so double check every financial document before submission.
- Get your financials in order: – Getting a small business loan is not an overnight process. It requires months of preparation. You should work on improving your financial statements before submitting your application. Make sure that you have filed your Audited Income Tax returns for the last 3 years with the income showing an upward trend. Make sure that there is no cheque bouncing or EMI bouncing in the previous one year in your bank accounts. You should maintain a steady bank balance in your savings and current accounts to show your financial stability. If you are using a credit card, make sure its bills are being paid on time, and the outstanding is below 30% of the sanctioned limit. Also, make sure that you have filed your VAT/GST returns on time.
- Clear Existing Debts or Loans – If you have some running personal loans or business loans, it might affect your eligibility for a business loan. It would be ideal if you can close these loans or clear the debts before applying for a new small business loan. The lesser is your debt liability easier it would be for you to get approved for a business loan. Lenders might think you as desperate if you have multiple loans already running, so wait for a few if not all of such loans to close before moving ahead with your application.
- Research Thoroughly – Different lenders have different eligibility criteria, terms, and conditions, interest rates etc. So, before you move ahead with your business loan application conduct thorough research and find out as to which lender would be most suitable for your profile. Rather than wasting your time applying with multiple lenders without any surety of access, it would be better to conduct preliminary research online and find out which lender is offering the best deal according to your profile. This would significantly improve your chances of getting a small business loan.
It is advisable that you take some time preparing your applications for a collateral free business loan rather than going ahead without any planning. With a little planning, you can greatly improve your odds of being approved for a small business loan.
Author: Rahul has over 7 years of experience in digital marketing. Prior to joining ZipLoan.in, Rahul worked at Content Mart and was instrumental in ensuring a 110% year on year growth of the business. Before this, he worked at Jabong as a part of the International Business Expansion team which focused on Overseas Markets. In the initial phase of his career, he worked with an auto portal where he achieved a 65% traffic scaling. Rahul holds a Bachelors degree in Technology