Investment capital is a prerequisite for starting a new business or expanding an existing one.
Business loans offered by various banks and other financial institutions can give wings to your idea and help you implement it in the real world.
However, there are certain prerequisites that a lender looks into before granting a loan to a business.
If you’ve also been considering the idea of taking out a business loan, here are some things you should keep in mind when applying for one.
1. Low CIBIL score
A CIBIL score is a certification of a borrower’s creditworthiness. While a high CIBIL score increases the likelihood that loan applications will be accepted, low scores can have a negative impact. Therefore, it is advisable to maintain a good CIBIL score through disciplined financial practice.
2. Incomplete Documentation
Along with a business loan application, the borrower must submit a series of supporting documents, including KYC-related documents, proof of income, and establishment details, among others. Not having the necessary documents can be a big red flag for your business loan application.
3. Not registering the business
Before you start applying for business loans, it is important to register your business. Not having the business venture is likely to reduce the likelihood of your loan application being approved.
4. Not having a future roadmap
Besides the current value of the business, lenders also consider the prospects of the business when considering a loan application. A business plan that outlines the vision and future of the business with market analysis and revenue and profit projection will strengthen your candidacy.
5. Not knowing the loan terms well
Before you zero out your business loan, it is crucial to meet the terms and conditions. Lenders may charge high processing fees and other fees while promising a seemingly low interest rate. This will likely increase your total cost of borrowing.
Comparing business loans offered by other lenders in the market before making the final call could help you save a lot of money.