As a startup owner or an established business
person, you would agree that financial dependency is an unwritten rule in
business. There might be instances when one needs funds to scale their business
or have faced unwarranted situations that demand immediate funds. There might
be some cases as well, where a company would like to tap an unexplored
opportunity and needs help from their financial partners.
For the scenarios above, rejection of a business loan application can be very stressful for the business owner. Such a denial from financial institutions can derail business efforts and affect morale as well. A smart business owner aims to avoid such instances.
Most of the financial institutions have categorized the types of business loans that cater to various requirements of entrepreneurs with appropriate business loan interest rates. To choose the right loan for your organization, you need to have a clear vision and also minimize the chances of loan rejection. Here’s how you can improve your chances for a successful fund dispersal.
Tips which Improve Chances of Getting a Business Loan:
- High credit score: The bank or an NBFC will always review your credit history during the loan review process. It involves both the organizations’ and personal repayment history. A poor credit score typically would not provide confidence to the lending institution. Large organizations do manage to get additional funds because of their brand reputation, but the majority of the businesses must have a high credit score for business loan eligibility.
- Cash flow: A positive cash flow translates into an excellent reputation for the company, which, in turn, helps the firm to qualify for a business loan. A company can have a positive cash flow by a clear vision, right product or service, timely customer support, timely repayment, cutting down on non-essential expenses, proper invoicing, and setting up a contingency fund for emergencies. A financial institution would take positive cash flow as a significant factor as a part of their lending process, and hence you would need to focus a lot of bringing in positive cash flow for your company.
- A reliable plan: Let’s admit that no project is 100% fail-proof, but the idea is to commit fewer mistakes when charting down a business plan. Let’s consider that you are a new business owner and do not have past repayment history; then, a lot depends on how you pitch the business plan to the financial institutions. If you project a redundant or unimpressive plan, then there is a possibility of loan rejection. Hence the business owners should focus a lot on a good business plan and projection.
- Being eligible: Eligibility criteria varies from one lender to another. Hence you might want to understand the terms and conditions of a financial institution before approaching for a business loan, which should help you avoid wastage of time and effort. Nevertheless, NBFCs want to empower small & medium businesses with funds so that they can scale and contribute to the economy.
- Adding value: Let’s assume that you have estimated the need for funds through the business loan calculator. You then approach the bank or NBFC for your requirement, be it R&D, marketing spend, purchase of a new facility, or equipment. If your financial partner believes that your loan would add value to the business, then the dispersal process is typically quicker. If you are unsure about the loan purpose, the bank or NBFC might not be comfortable in providing you with additional funds.
Getting funds for your business becomes more comfortable if you have the right approach to financial management. The startup culture, a pleasant business climate, has encouraged many entrepreneurs to venture into business, gain profits, scale, and achieve their organizational objectives.