Bankers are keen to lend to creditworthy entrepreneurs and viable projects. We provide below 5 key things that you should start doing now to avail a business loan from a bank:
1. Understand how lenders appraise viability of your project.
2. Check your credit history or credit score – Your credit scores can be checked online, typically credit scores in India are maintained by credit bureaus, they track your credit availing history like loans, credit cards, consumer durable loans etc and calculate a score basis these. Each time your apply for a loan to an NBFC or a bank, they check your credit score, so it is important to know it, as it’s like doing a health check-up once in a while. You can learn more about checking and managing your credit score here.
3. Use your bank account to do your business transactions. In India majority of businesses are run in cash, so when you try to apply for a loan there is no way to check your income and expenditure patterns, and it becomes difficult for lenders to assess your credit worthiness. We always advise entrepreneurs to open current accounts with a conveniently located bank branch and start using it for your business cash flow management. Within a month of doing it, the chances that you will receive a cost effective business loan/cash credit are up by ~50%.
4. Do not apply to multiple financial institutions at the same point in time for loan – We understand that your business requirement is urgent but applying to multiple places at once adversely affects your credit score and in turn dilutes your chances of successfully availing a loan.
5. Prepare proper documentation for the loan– We know it seems most obvious that one would have prepared or looked at all the documents, still majority of the small businesses struggle here, so it helps to know more. Documents required to avail a business loan from formal sources include your address proof, identity proof, bank statements, business continuity proofs. For a detailed understanding on documents please read here.