An empty garage and a head full of ideas is what drives our generation to choose the path of entrepreneurship Business Loan Application.
A small business innovation called Get-A-Whey that began in a mother’s kitchen in 2018 hit a milestone of Rs 2.5 crore within two years. In spite of several big players dominating the industry, this family fought against all odds to mark their name in the field. They featured themselves in Shark Tank and found a new opportunity with the right advisory. Learning to acquire funds and investing the same in the right place to grow your business is an age-old mantra of a good entrepreneur.
India is home to about 43 million small businesses, contributing to nearly 33% of the country’s Gross Domestic Product. Be it such statistics or pitches on Shark Tank India, the importance held by these MSMEs in India’s economy is quite clear to see. But the sad part is that this sector has a credit gap of Rs. 25 trillion and one of the many reasons for the same(gap) surprisingly is mistakes made during the MSME loan application process.
Here’s how to avoid some very common mistakes that can keep your business from getting the much needed funds:
Get the business registered
A lot of small businesses in India have not registered with the appropriate government authorities. Lending institutions mostly don’t entertain loan applications from such borrowers that are unregistered. These rejections can have adverse impact on the immediate plans of the business and creditworthiness. Hence, borrowers should get their businesses registered with the relevant authorities to increase chances of getting their loan application approved.
Have a solid business plan in place
A business plan covers your vision and the roadmap for your business. It includes the business model, market analysis, financial projections, growth plan and such. Having a clear business plan convinces the lender about the business’s viability, while absence of the same lowers the confidence of the lender. Hence, a well laid out business plan is imperative to demonstrate your sincerity regarding the business and reassure the lender of your intentions.
Keep a check on your credit score
While applying for a business loan, the credit report of the business is not the only important thing. Personal financial health of the applicant also factors in determining approval or rejection of the loan application. Lenders assess creditworthiness of the applicant by theircredit history, to check if they have a good credit score. The funding may be rejected if the personal credit history is in doubt. Hence, borrowers must check their credit score prior to applying, so that it increases the lender’s confidence and their chances of getting the application approved.
Gather all the required documents
Applying for a business loan is a time consuming process as it requires submitting a host of documents like bank statements, company credit report, tax returns, etc. Not providing or delay in submitting these documents may give the lender an impression that the business is not compliant enough or is trying to conceal something. It may lead to delay or the application being outright rejected. Hence, the applicant should note the necessary documents and keep them handy, so that they are able to produce them whenever required.
Disclose relevant financial information
It is important to reveal the actual financial status of the business to the lender. If the lender spots a discrepancy in the financial numbers, it will lead to rejection of the application and may invite legal consequences. Whether the business is in loss or profits, it is advisable to always maintain transparency during the loan application process, to avoid any negative repercussions in the future.
Avoid applying for multiple loans
Many borrowers apply for several loans at the same time, with the hope of getting at least one loan approved. This, in turn, can lead to them being perceived as credit-hungry and can reduce their credit score. Therefore, it is better to research and seek the loan best suited for your needs.
Capital is necessary to not just start your business, but also to keep it running. Availability of funds at a crucial time can take your business to heights. Similarly, absence of these funds can halt your business’s growth or in unfortunate circumstances, even cause struggles in carrying out daily operations. Getting an easy business loan like Karnataka Bank’s Xpress MSME Scheme, is the most practical way to steer clear of this situation. As simple as it sounds, it is wise to be cautious of making such easy mistakes that many people tend to make in the process. Higher the awareness, higher the chances of your loan application getting approved!