SME loans in India have been gaining tremendous popularity among small business owners. Much of their popularity stems from the fact that entrepreneurs can get funds to meet business requirements without providing an asset with considerable value as collateral.
However, the small business application approval depends on factors such as income and credit score. The applicant must convince the lender that the business does well to repay the loan amount within the stipulated EMIs. The best part is that borrowers can avail of lower interest rates compared to other unsecured loans.
Borrowers can take an SME loan in India for the following purposes:
- Buy new stock
- Purchase equipment
- Expanding office space
- Business marketing
- Payment for additional staff
Successful tips to apply for an SME loan in India
Even though the process of applying for a small business loan is easy and convenient, there are certain things the applicant needs to be mindful of to ensure a seamless borrowing experience. Here are the top tips to know before applying for a small business loan:
Make sure to have a business plan
Lenders expect borrowers to have a genuine reason to get a loan. So, while before applying for an SME loan in India, applicants need to create a business plan indicating that the business is a profit-earning one. The business plan must contain details of the business and a plan on how the applicant is going to use the sanctioned loan amount.
It is imperative to submit certain documents supporting the business. These documents contain information about industry statistics, unique market advantages, and social presence. It allows the lender to determine the loan amount and interest rate.
The required documents are:
- Personal and business ITR
- Bank statements
- Financial statements
- Driving license
- Business license
- Articles of corporation
- Financial projections
Determine how much you need as a loan
After creating a business plan explaining the business and the need for a loan, the applicant will need to determine the reason they need a small business loan. The applicant will need to decide with the exact amount they need. Before submitting the application, it is important to assess the needs and then request a loan amount that suiting their repayment capacity with the set loan tenure. It would be wise to avoid taking a higher amount than is needed. As a rule of thumb, the higher the loan amount, the higher will be the interest rate.
Also, it is important to keep in mind that some lenders may not be able to offer the amount based on their eligibility conditions. So, make sure to do vetting on lenders and their offers. Choose a lender who can offer the amount needed at a lower interest rate.
Check your credit score
SME loans in India are unsecured types of loans. It does not require borrowers to pledge anything as security. However, the lender will consider the applicant’s credit score before approving the application. It is a crucial parameter to determine the borrower creditworthiness. It is worth noting that the personal CIBIL score does not have a bearing on the eligibility, but at times, lenders do check the borrower’s credit record.
If the lender decides that the financial records of the business are not enough, the applicant will have to furnish their credit score to get approved for a loan. So, before submitting the loan application, make sure to check the credit score online. If the score is not enough, the applicant will need to take the necessary measures to improve it.
Compare different lenders
After creating a small business plan, determining how much the applicant needs as a loan, and ensuring that they have an excellent credit score, the applicant will need to find a lender offering a small business loan that best serves their needs and preferences. The loan amount, interest rate, and loan tenure vary across different lenders in India. The borrower must compare at least 4 to 5 lenders and choose one that suits the business’s requirements. The applicants can also look for reviews and testimonials that offer great sight into their reputation.
Applying for an SME loan
After finding a suitable lender, it is time to submit the application. The process of applying for a small business loan is easy and convenient. The applicant will need to visit the lender’s website, fill in the online application form, and submit the required documents. If everything is in proper order, the lender will approve the application and disburse the sanctioned loan amount to the registered bank account.
Getting an SME loan in India is the best way to fund your business needs without touching your savings or cash reserves. The upside is that you can get a loan amount and interest rate based on your needs. However, it is imperative to have a higher repayment capacity to avail maximum benefits and lower interest rates.