Given the fact that this is the age of startups, one would be mistaken to think that it’s easy to establish a venture, which is true in a way. Most startups are in a position to raise revenue through funding, but what happens if you are unable to find investors? The only way forward in this case is to approach a lender, be it a bank, a NBFC or a private moneylender. Of these options, a moneylender is perhaps the last person one should approach, unless they are willing to pay the exorbitant interest rates. This leaves two viable options in front of an entrepreneur, a bank or an NBFC. Most banks and NBFCs are willing to offer financial support to a viable plan, but there are a few crucial things a borrower should consider before approaching them.
Tips to ensure your loan application isn’t rejected
A lender, be it a bank or an NBFC, will not provide a business loan unless you meet all their requirements. Listed below are a few important aspects which could help you get the loan to finance a business of your choice.
Have a business plan – The first step to availing a loan for your business is to have a business plan in place. Most lenders will not offer a loan until and unless a clear plan is presented to them. This is primarily because a business without a plan might not be in a position to generate revenue, which puts the investment of a lender at risk. Given the fact that most lenders aim to generate profit out of their investment, a loan application could be rejected outright if there is no solid plan backing the request.
Don’t get greedy – It is easy for us to overshoot our requirements and ask for loans which are exorbitant. A lender, is more likely to reject such loan applications, primarily on account of the unreasonable amount quoted. One should remember to ask for an amount which is necessary, even if it means that it might require more hard work from you. Banks and NBFCs are wary of people who apply for extremely high amounts, with the loan requirement expected to match certain criteria. An application which follows a moderate approach in terms of the amount required has more chances of getting approved when compared to a frivolous amount.
Choose the right bank/NBFC – Choosing the right bank to support your business dreams could be as important as the dream itself. It is imperative that one opt for a bank/NBFC which is known to support entrepreneurs, one which is open to new ideas and is customer centric. There are banks which could reject a loan application without a second thought, which is why choosing the right lender is critical. Also, a number of banks offer specialised products to help people realise their business dreams, which make it easier to apply for and avail a loan. In addition to the reduction in hassle, interest rates could also play a key role. Certain lenders are known to offer lower and more competitive interest rates compared to others, which could help a borrower save a tremendous amount on loan repayment.
List your assets – Listing the assets the business owns can help in fast-tracking a loan application, with banks and NBFCs willing to offer loans on the basis of these assets. Secured loans which provide collateral are easier to obtain and come at lower interest rates when compared to unsecured loans. A healthy list of assets build trust and confidence, with lenders sure of your intention to repay a loan.
Research – The government has devised a number of schemes and plans to help entrepreneurs. Thorough research on these schemes could help you get a loan which matches your requirements. Lenders who offer these loans will be obliged to offer credit (provided you meet their criteria), making it easier to avail a loan to start your business idea. In addition, one can also benefit from government grants and subsidies, which could go a long way in strengthening a business.
Maintain a relationship – Your existing relationship with a bank can play a crucial role when it comes to processing your loan application. Individuals who have a healthy banking relationship are likely to find it easier to get their loan application approved. This is in stark contrast to those who have a poor relationship with the bank, for a lender will keep this relationship status in mind before approving/rejecting a loan application. Approaching a bank with whom you have banked in the past could improve your chances of getting a loan, provided you had a healthy relationship.
Sort your credit history – Your credit history could be a determining factor when it comes to a loan application. Lenders will go through your credit history, which typically contains information about previous loans taken, their repayment pattern, any lapsed/delayed payments, etc. A poor credit history could see a loan application get rejected. It is therefore imperative for one to be aware about the credit history before applying for a loan.
Need for investment – Banks and NBFCs will scrutinise an application thoroughly, looking at all the details before making a decision. One aspect they will look for is the need for a particular sum of money. It is possible for us to quote an amount which is higher than needed, which could result in an application being rejected. One should back the amount asked with sufficient proof and paperwork, trying to elicit confidence from the lender. It is imperative that you consider all the budgetary requirements to get your business up and running in the application.
Have your papers ready – There are a number of formalities when it comes to availing a loan, with lenders insisting on certain documentary proofs before sanctioning a loan. Ensure that you have all your documents in order, right from your personal information to registration deed of company, PAN details, relevant forms, IT returns (if applicable), project reports, invoices, any government clearances (if required), etc. Failing to produce any of these documents can see an application rejected, which makes it critical to have all the paperwork sorted out before applying for a loan.
Build a strong team – A lender could focus on your team as well, with it easier to get a loan if you have individuals who have a proven track record. Expertise in a certain subject coupled with good credit history of the teammates could strengthen a loan application.
Starting/expanding a business is never easy, but following a few simple steps can ensure that you are in a position to avail the necessary amount to finance your dream.