Entrepreneurs and SMEs owners require business loan from commercial banks and financial institutions to finance their growth. In the process, potential lenders are likely to have certain queries for them. As an entrepreneur, it’s better to be prepared so that your chances of securing the loan become higher. Here are some of the requirements that can crop up when you go for a loan:
AMOUNT OF MONEY REQUIRED:
The lender would want to make sure that the applicant has cautiously calculated the finances required. The potential lender would want to have precise details of the business plan and the amount of money needed as a business loan. To gain further insight, the applicant would be questioned about detailed finances so as to decide upon the final loan amount.
COLLATERAL:
Potential lenders would want to know if the applicant could pledge a valuable asset as a security (also known as collateral) to get the business loan. Instead of collateral, a lender may demand personal guarantee on the loan, so that the applicant is solely responsible for the debt.
BUSINESS PLAN AND FEASIBILITY ANALYSIS REPORT:
A detailed business plan (summarizing details of company, products/services, market, financials, team) might be required. This would determine allocation of funds in various projects / segments of the business. Furthermore, for new projects, a business report that predicts profitability would ensure that the applicant has done enough research and that he would be able to pay back the business loan on time. The lender would also be interested to understand the expansion and growth opportunities of the business. In other words, a well established business plan which depicts that the business has the capacity to generate enough money would suffice the purpose of availing a business loan.
DETAILS ON ACCOUNTS RECEIVABLE:
The lender would question details of your sales and payment history to understand the performance of your business. This would include information about money owned by entities to the applicant’s business through the sale of products and services on credit.
DETAILS ON ACCOUNTS PAYABLE:
The lender would want to gain deeper insight into the personal as well as business credit profile of the applicant. This would include information about past loans, credit cards, tax ID numbers, taxes paid and other relevant details. If any negative remarks are gathered, precise justifications might be required for approval of the business loan.
FINANCIAL STATEMENTS:
A lender may want to have a look at the balance sheet as well as profit and loss statement of previous businesses of the applicant, so as to ensure his profitable business performance. This would also showcase the calibre and expertise of the applicant in a business environment. Moreover, audited and reviewed statements by a CPA (certified public accountant) would depict more accuracy and responsibility of the applicant’s work.
INSURANCE INFORMATION:
Some lender stress on the importance of insurance policies of one or more founders against business loan as well. This further reduces the lender’s risk of approving a business loan.
AGREEMENT ON FUTURE RATIOS:
Most companies taking a business loans agree to maintain/standardize key ratios such as debt to equity, current ratio, quick ratio and others. It is important to maintain these parameters. If these ratios fall below specific levels, then the applicant is categorized as a defaulter.
GOOD CREDIT RATING:
The potential lender needs to make sure that the applicant has a good credit rating for his business. In a manner, this indicates the lender about the applicant’s capabilities to return back the money on time.
OWNER’S EXPERIENCE:
Banks and NBFCs such as Tata Capital give much emphasis to the professional experience and qualifications of founders / entrepreneurs who apply for business loans. Individuals with stronger experience or a degree from a reputed institute are likely to benefit. Therefore, the applicant needs to make sure that he is focused on highlighting his expertise and the good work done. This in turn would convince the lender to carry on with the business loan procedures.
MANAGEMENT TEAM:
The potential lender would ask questions regarding the management team of the business. If the management team depicts high expertise, it would guide the business towards profitability. However, if the applicant’s business does not have an experienced management team to back up various business activities, then the lender might not be comfortable to proceed with the business loan procedures.
CUSTOMER BASE:
The applicant needs to showcase a strong customer base to put forth a good impression on the lender. It becomes important for the applicant to conduct thorough market research, brainstorm and investigate upon various customer segments of the business.
So keep the above points in mind and make sure you have the necessary documents ready before you apply for the loan from NBFCs like Tata Capital. Know more about Business Loans online and its application process by visiting our website..
08 January 2020
5 mins read
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