Business loans are essential for companies especially Micro, Small and Medium Enterprises (MSMEs) to source the desired fund requirement to survive and grow. Being honest and transparent is the key while availing a business loan. Moreover, a detailed business plan along with your business loan application process can help you in getting a business loan.
Nevertheless, it is paramount to build confidence in your lender and communicate it very clear regarding your plans for the repayment of your business loan. It has now become easy to calculate repayment of the loan using business loan EMI calculators. Creating a strategy with a backup plan can help your lender that you are confident as well as careful with your money and also overall prepared for the worst. Below detailed are the 5 Tips an MSME can adopt to improve its chances of getting a business loan.
1. Submit a business plan with clarity:
The business plan details the realistic way to achieve a business goal from a business idea in the stated time. Thus, MSME should draft a detailed business plan clearly stating the marketing strategy that shall be adopted, the prevailing competitors in the marketplace, the sales forecast, the finance forecast, etc.
A financial lender reviews the business plan to check if the business is viable and sustainable before sanctioning the business loan.
2. Good credit score:
The credit score of the MSME reflects its creditworthiness. Good credit of the MSME directly states that the MSME can repay the business loan in a timely manner and is genuine.
Thus, it is essential for an MSME to review its credit score before proceeding to apply for a business loan. If the credit score is found to be low, the MSME can improve it by clearing its debts by paying all its outstanding payments.
3. Business loan documents:
Though the business loan documents are basic and minimal, the MSME should first gain information about the documents desired by the financial lender for the business loan and then accordingly ensure that the documents are prepared or arranged properly and keep everything ready in advance.
The basic business loan documents are identity proof, address proof, bank account statement, business registration copy, ITR copy, passport size photographs, etc.
4. Cash flow:
The cash flow of the MSME helps the financial lender ascertain if the MSME is capable of repaying the business loan in the agreed period. Thus, an MSME must maintain and stabilize its cash flow.
MSMEs usually do not get payments against the sale transaction which creates a shortage of funds temporarily. And this shortage of funds results in the instability of the cash flow. To improve the cash flow, the MSME can take short-term business loans or opt for invoice financing to overcome this shortage of funds and stabilize the cash flow.
5. Select a proper financial lender:
Several financial lenders are available in the market offering business loans. An MSME should thoroughly research about them, the business loan being offered by them, their service fee, business loan interest rate etc and accordingly, choose the one that is best suited for its business.
To conclude, an MSME should do deep research about the financial lenders in the marketplace, the available business loans, its pros & cons, prepare desired business loan documents well in advance, improve credit score, stabilize cash flow, etc to improve its chances of getting a business loan.
1: What is an MSME loan?
An MSME loan is the business loan desired by the MSMEs to take care of its business and for its business expansion plans.
2: What is the MSME loan interest rate?
MSME loan interest rate is the interest rate being charged against the MSME loan being availed.
3: What are the types of business loans?
Business Loans can be secured business loans whereby collateral has to be provided by the company to the financial lender as security against the business loan or unsecured business loans whereby there is no need to provide collateral.
4: How to get an MSME loan?
MSME loans are online business loans and therefore can be applied by visiting the web portal of the financial lender.