Getting a business loan is a daunting task! Banks are a lot more careful while lending money to business owners and this makes it even more difficult to acquire a loan for your business.
Just like any other loan, for a business loan as well, banks and financial institutions will require some key documents related to your business, to even initiate the loan process.
- Balance Sheet – The company’s balance sheet shows a complete summary of the company’s liabilities, assets, as well as equity during a specific period.
- Tax Returns – It is important to keep all your tax return documents safe, as they prove that you, as a business owner, are a tax abiding citizen and the banks or financial institutions can trust you, while lending money.
- Profit and Loss Statement – The P&L statement gives a complete idea of your business’ revenue and expenses, and the lender will be able to get a complete picture of the net income that your business makes.
- Debts and Account Receivables – The debt service document will explain the debts that you have to pay while account receivables document will explain the amount that is owed to your business from other companies.
Though most lenders ask for the same kind of documents for business loan, it is better to have a word with the bank or financial institution, about the process of business loan application.
Though the business loan eligibility criteria may vary from lender to lender, the broad criteria remain more or less the same.
- Credit Report –It is important to have a strong credit history. You must be aware of your credit report and it is better to keep a track of the same from time-to-time basis.
- Feasibility –Any lender will have a look at your business feasibility before sanctioning your loan. It is advisable to follow business standards when it comes to giving profit and loss projections, feasibility of the current and future projects.
- Business Plan – Having a robust business plan is a must, while seeking any business loan. The lender must be fully convinced about the future of your business, financial visibility as well as the plan of action chalked to achieve the goal.
Need for Loan
Just like home loan, personal loan or car loan, it is very important to first understand the need for applying for the loan. The reason behind applying for the loan should be convincingly clear to the bank officials. Unless and until the bank is convinced about the reason behind the loan, the loan process will not be initiated. Though the loan looks lucrative, it is still a liability for the company. Thus, it is important to carefully evaluate whether there is an actual need for getting a business loan or some cost-cutting processes can be applied to get the company out of financial crisis, if any!
- Carefully chalk out long-term and short-term goals
- Maintain payments schedule
- Keep checking business’ financial health on a timely basis
- Have a clear cash forecast
- Maintain a sound relationship with customers, vendors, and lenders.