Business Loans: A Beginners Guide 

Introduction

The success and growth of a startup company are directly influenced by fundraising. An advantage of obtaining a business loan is that it may help you grow your company and take it to new heights. Financing the business is the only option since personal resources are insufficient to fulfill the high financial requirements of the enterprise. This article is focused on Business loans.

What is a Business Loan?

Just as people need loans to satisfy personal needs like paying for a mortgage, getting an education, or buying a car, companies too need loans to meet needs like growing their business, establishing additional branches, increasing inventory, etc. Firm loans are the terms used to describe these loans, which are needed to expand the business.

Who Is Eligible for a Business Loan?

If a business meets the standards of its particular lender or bank, it can get a business loan. If you fulfil the conditions of your lender, you can get a loan whether you are a Partnership Firm, Sole Proprietorship, Public Limited Company, Private Limited company, Limited Liability Partnership, One Person Company etc. In addition, applicants for company loans must be between the ages of 21 and 65.

Beginners Guide to Business Loan

We’ll go through the step-by-step process to obtain a business loan. Now you are aware of what a business loan is.

Simply Define Your Loan Need

The first and most important step is to outline your requirement for a company loan in detail. It is essential to state your requirement since the bank or lender will base their decision on it, whether you need a loan or not. By defining the necessity, you may ensure that you are not exaggerating your need for the loan and you genuinely need it.

Create a detailed business strategy

After identifying the requirement, creating a business plan is the second important factor in getting a business loan. Lenders can get a better picture of how you plan to spend and distribute their money from your business plan. It will also offer a general concept of how you intend to grow your company.

The moneylender would undoubtedly want to know it to ensure that you can make the repayments on time since if you fail, the lender will suffer a loss. Make sure your plan is succinct but detailed. In your business plan, you may include the following points:

1. The motive for your business.
2. Earning the trust of management through their expertise in your industry
3. Past achievements of your company
4. Future goals for the company

Prepare the Papers

The next step is to prepare the paperwork when your company strategy is complete. Because it involves so many complicated financial transactions, tax filings, and other legal and administrative procedures, documentation is one of the most difficult phases in applying for a company loan.

Another reason is that because there is more money involved, the process takes longer to complete, requiring other paperwork. Depending on the lender, other documents may be needed. However, The following is a general list of the needed documents:

1. PAN Card
2. Legal documents required, such as income tax returns and GST returns.
3. Deeds of Partnership or the Certificate of Incorporation.
4. The bank statement for your business account.
5. Financial statements from the three years prior, including audit reports, audited balance sheets, profit and loss accounts, etc.
6. Projected financial data for upcoming terms.

It is advised to take the help of a specialist like a company secretary or a chartered accountant as they are knowledgeable in this area and can offer accurate information in case of paperwork.

Approach the Lender

Approaching lenders/banks is the final step in the loan application process for businesses. To ensure you obtain the greatest offer, it is advised to examine the costs and advantages of contacting several lenders before making contact. For example, bank loans often offer lower interest rates but need more time to repay. However, small cooperative banks, provide higher loan rates but require fewer paperwork and verification.

Asking about the collateral that the lenders need is another important question to ask. Last but not least, if you need a business loan from a lender, you should also find out what other fees and the processing costs are. Before contacting the banks, it is advisable to consider about the below suggestions to make a wise decision and avoid future problems.

Do You Need Any Collateral?

For lenders or banks, business loans are risky, large-amount loans that call for some sort of collateral. It might appear as liquid assets like commercial or residential real estate or bank deposits. If you are unable to repay a company loan, the bank will seize the collateral. The submitted collateral must be suitable for the loan for which it is being offered. However, there are several lenders offering company loans nowadays, even without security.

Conclusion

Business loans are great when a firm needs to raise capital or expand their businesses. Additionally, it can assist in preserving cash flow during difficult situations. Business loans can improve your financial security through tough times in the fluctuating market situation. To put it briefly, raising funds is essential for the growth and development of a rising company. Make sure to consider all the advantages and disadvantages of contacting each money lender to choose which is ideal for you based on your priorities.