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Tata Capital > Blog > Loan for Business > How to Apply for a Business Loan in 4 Easy Steps?

Loan for Business

How to Apply for a Business Loan in 4 Easy Steps?

How to Apply for a Business Loan in 4 Easy Steps?

Building a business from the ground up and getting it to thrive is no small feat! But many a time, when it comes to expanding or diversifying it, funds can fall short, even if you plough back all your earnings. Or it may be that you are unable to meet the working capital requirement, or you need to upgrade equipment or machinery. In such cases, applying for a business loan is the right way to go.

In the past, getting a loan for business seemed like an ordeal because of the complicated documentation involved. Many business owners were also discouraged because of the time it took for loan applications to be approved, and for the loan to be disbursed. 

But now, most lenders have relaxed their documentation requirements and simplified the entire loan application and disbursal process. Where previously applicants had to go to the lender’s office and run from one counter to another, they can now apply for a business loan online, within minutes. You can also upload the documents required and submit them online.

Many lenders offer business loan EMI calculator tools on their website, which borrowers can use to calculate EMIs and assess eligibility before applying. These reforms are especially welcome now that businesses everywhere are suffering substantial losses and facing liquidity crunch and cash flow issues because of the COVID-19 pandemic.

If you are looking to avail finance for your company, but don’t know where to start, here is a list of tips that will tell you how to apply for business finance in four easy steps.

Step 1 - Fill the loan application form

For those who do not know how to apply for business loans, the first step is to fill out the loan application form. Most lenders offer different kinds of loans for businesses, such as SME & MSME loans, machinery loans, or loans for businesswomen. Choose the loan category that applies to your business, and fill out the loan application form. You don’t have to visit the lender’s office to fill or submit your loan application; you can do it online.

Typically, the loan application form contains two sections – personal details and business details. In the personal details section, you will be required to furnish personal information such as your email address and other contact details, your residential address, your PAN card number, etc.

In the business details section of the loan application form, you will have to furnish information such as the nature of your business, annual turnover, and the duration for which the company has been in business, also known as business vintage.

After filling in the requisite details, carefully go through the terms and conditions before you submit. Double-check to see if you have filled in every data field and checked all the applicable boxes. Missing data can delay the approval process.

Before you apply, make sure to check if you are eligible, by using the business loan eligibilitycalculator on the lender’s website.

Additional Read: A guide on how to fill the Business loan Application form

Step 2 - Submit the required documents

Before you submit your loan application, ask your lender what all documents will you have to provide. Prepare these documents in advance, to prevent any delay in submission and processing of your loan application. The documents that you will need have been listed below.

  • The loan application form, duly filled.
  • Two passport size photographs of the applicant(s).
  • Identity proof, any of the following is accepted - Aadhar card, driving license, voter ID, passport.
  • Address proof, any of the following is accepted - Aadhar card, driving license, voter ID, passport, bank passbook, lease agreement, utility bills, trade license, sales tax certificate.
  • Bank statements of the company from the past six months.
  • Certified bank records of the applicant from the past six months.
  • Balance sheet, profit & loss statements for the past two years.
  • Income tax returns, along with computation, for the past two years.
  • Ownership documents, certified copy of partnership deed or declaration of sole-proprietorship.
  • KYC documents of the business, including articles and memorandum of association, PAN card, partnership deed, registration of incorporation.
  • KYC documents the business owner(s).
  • A detailed report, explaining how you will use the business loan amount.

Note that the balance sheets, profit & loss accounts must be audited by a certified chartered accountant.

Additional Read: How to submit your Business loan documents like a pro and get them approved

Step 3 - Sign the loan agreement

If you meet the business loan eligibility criteria, and the lender is satisfied with your credit score and loan application, your loan will be approved, once your documents have been verified. The lender will then draft the loan agreement and ask you to sign. Go through the loan agreement carefully before you sign, or have your lawyer go through it. If you have any queries, ask the lender to clarify.

People who do not know how to apply for business loans or those who are applying for the first time tend to overlook certain critical details while going through the loan agreement.  Some of them have been discussed below.

Type of interest rate applicable

A business loan interest rate can be of two types - fixed and floating. If you are not informed about the differences between the two, your lender may make that choice on your behalf. But the repayment amount can vary significantly with the kind of interest rate applicable.

Therefore, before signing the loan agreement, make sure you are aware of the type of interest rate mentioned in the loan agreement and how it will affect the amount you will end up paying.

Prepayment penalty

Most lenders will charge a penalty for prepayment of the loan. If you prepay your loan, without considering the prepayment penalty, your calculations will be off. Any savings you were hoping to make by prepaying, will be outweighed by this hidden cost.

When going through the loan agreement, make sure you pay attention to the terms and conditions related to prepayment, especially the prepayment penalty. Many lenders offer business loan calculator tools, to show you how much money, if any, you can save by prepaying your loan.

Penalty on default

At some point during the tenure of your loan, you may be unable to pay the EMI. But if you miss any payments, your lender will charge a penalty. If the default penalty is too high, it may make sense to borrow some money at a lower cost and pay your EMI. Some lenders may charge a higher penalty than others, therefore make sure you go through the loan agreement carefully.

Role of the guarantor

If the borrower defaults, some lenders may recover the loan amount from the guarantor. The terms of the loan may state that the guarantor is liable to repay the loan, in case the borrower defaults. Therefore, it is imperative that both the borrower, and the guarantor go through the business loan agreement carefully, and ascertain what the role of the guarantor is.

Additional Read: Things everyone must know about a Business loan Agreement

Step 4 - Await loan disbursal

The loan disbursal process involves many intricate steps. Before they credit the loan amount, the lender has to ensure that your business will generate enough revenue for you to be able to repay the loan. Even when you do everything right, that can take a significantly long time.

But if you make any mistakes while applying, the approval and disbursal of the loan may take even longer, or worst-case scenario, your loan application may be rejected. To avoid that, adhere to the guidelines discussed below.

Improve your credit score

If the lender is not satisfied with your credit score, they will reject your loan application. But

even if they do not decline your application, they will charge a higher business loan interest rate. This will make it harder for you to pay back the loan and further damage your credit score.

The lender may even take longer to disburse your loan if your credit score is not decent. Many lenders offer business loan calculator tools to help you check the rate of interest that would be applicable, based on your credit score.

Therefore, check your credit score and see if it needs any improvement before you apply for the loan. In case you have raised a dispute with the bureau of credit, wait for them to settle it before applying for the loan.

Ensure you meet the eligibility criteria

To meet the business loan eligibility criteria, you must be between 25 and 65 years of age. Also, the turnover of your business must exhibit an upward trend, and your company should be profitable for three consecutive financial years.

Prepare your business plan

Prepare a detailed business plan before you apply for a loan for your business. You will have to pitch your

business plan to a loan officer, and it should be convincing enough to win them over. Tell them why you need the money, and what you intend to do with it. Your business plan should be clear and elaborate so that the loan officer understands what your business does, and how exactly does it make money.

Prepare your documents

The lender will ask you for the profit and loss statements, balance sheet, and cash flow statements from recent years. These records must be audited by a certified Chartered Accountant. Identity and address proofs, business incorporation certificates, and tax filings are also required.

Be prepared with all your documents to ensure quickdisbursal. If you are applying for a business loan online, make sure you scan all the documents and save the soft copies.

Additional Read: Business loan Disbursal process

Over to you

If you are looking for attractive business loan interest rates, Tata Capital is the ideal lender for you. We offer quick and hassle-free loans with minimal documentation. To help you explore different repayment options and see what works best for you, we provide various tools on our website, including:

  • Business loan EMI calculator
  • Foreclosure calculator
  • Prepayment calculator
  • GST calculator

Visit our website and apply for a business loan online today!

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