7 Questions to Ask Yourself Before Taking a Small Business Loan

Possessing sufficient capital is the primary requirement to establish a business. However, as the business grows, there will be a requirement for additional capital to maintain its stability. These funds are required to run daily business operations, purchase advanced equipment, expand the business to other locations and more.

There are multitudes of small business loan options to escalate current businesses. However, as a small business owner, you must ask certain questions before selecting a potential lender.

7 Questions to Ask before Availing a Small Business Loan

Although the features of small business loans extended by different lending institutions are more or less the same but the terms and conditions of every financial institution will not be the same. So, before applying for a small business loan, you need to ask yourself the following questions:

Question 1: Am I eligible for the loan?

Before applying for any credit option, checking eligibility parameters and documentation are very important for the applicant. Individuals can negotiate with the lender for better interest rates and flexible terms against a small business loan by meeting the specified qualifying parameters and submitting necessary documents. To check whether you are eligible or not, you can make use of a business loan eligibility calculator to determine the exact amount that you are eligible to avail.

To know the eligibility parameters of leading financial institutions, read on:

• Applicant's age should be within the age bracket of 26-66 years
• Must have a business vintage of 3 years
• IT returns pertaining to business for at least 2 years are required
• Must be an Indian citizen

Apart from these, applicants need to provide the following documents:

• IT returns for last 2 years
• Age proof
• KYC and residence proof
• Bank statement for last 6 months
• P&L statement and balance sheet for last 2 years
• Passport-size photograph

Question 2: Why do I need the loan?

The purpose of the loan will determine whether you require a short term or a long-term one. The requirements of a loan can be different. For instance, it can be for opening a new branch in a new location or purchasing equipment and the like. On the other hand, if it is an established organisation, funds may be needed to meet working capital requirements. Therefore, before approaching a small business loan provider, it is always better to assess the requirement of the funds and justify the estimate of loan amount.

Question 3: How much funds do I need?

This is one of the most frequently asked questions when availing of any kind of loan. Acquiring a lot of funds at a time is not a solution. There are multiple costs associated with financing that needs to be carefully considered. If the business loan drives substantial returns on the investments and adds value to the enterprise, this is the most effective way to determine the fund you need. However, it is better to avoid over-borrowing and borrow the amount required to fulfil your business needs.

Question 4: How to get the business loans approved?

Usually, the application process for small business loans is simple with reputed lending institutions. Moreover, if you are in the business for a longer period and making substantial profits, it is easy to get quick approval without any hassle. Furthermore, possessing a credit score of 750+ and a good repayment history will ensure hassle-free small business loan approval at competitive interest rates.

Question 5: How to check if I qualify for a business loan or not?

To qualify for a small business loan and secure financing successfully, you need to convince the lender that you are capable of repayments on time. In addition, you need to be in the business for a certain period and have an impressive monthly turnover. If your organisation is running profitably and you have a decent CIBIL score, securing such advances is not difficult, make sure to perform a credit score check before applying for a new loan.

Question 6: How much EMI can I afford to pay?

If the borrowed amount is substantial, then the EMI will also be higher. Moreover, the repayment tenure and interest component also matter. If you go for a shorter tenure, your EMIs will be affordable, but the interest component will be higher and vice versa. Besides, if in one month your business does not do well and fails to earn a certain percentage, then it will be difficult to pay EMIs in that month. This is why it is essential to use a business loan EMI calculator beforehand to determine the EMIs and interest outgo to be paid against the borrowed amount to avoid any financial strain in the long run.

Question 7: How can I apply for a small business loan?

When applying for a business loan, you must prepare a cash flow statement to present a detailed overview of net profit, expenses, current income and future projections. In addition, most reputed lenders want to view the applicant's business plan before approving the loan. Therefore, it is essential to know about your business goals, financial position, and repayment capability. You can select the best financing product for your business by assessing your requirements.

Application Process of Small Business Loan

Here are the simple steps to apply for small business loan:
Step 1: Visit your preferred lender's website.
Step 2: Input name and phone number to verify the OTP.
Step 3: Submit basic and personal details.
Step 4: Upload bank statements for the last 6 months.
Once submitting the form, any of the loan representatives will reach out to you to discuss further loan proceedings.

To sum it up, by considering these questions before applying for a small business loan, you can make an informed decision and select the best loan product that will suit your business requirements. The more time you will invest in evaluating your business loan offer, the more likely you can choose the most suitable one for your business.