Introduction

Business loans by banks, NBFCs, or any other provider are financial help provided to meet the financial needs of MSMEs. The business loan is a helping hand to the Indian MSMEs which they use for increasing the scale of operations, daily operations, buying more inventory, upgrading technology, etc, irrespective of whether it is a small business, medium-sized business, or a large firm.

Types of Business Loans

• Term Loans: In traditional loans, a major portion of the business loan amount is given to the borrower. The same is then repaid with interest over a particular period. The term loan is utilized when investment for a long time is required, such as in purchasing business premises or other heavy equipment, etc.
• Working capital loans: These are working capital loans meant to aid MSMEs in helping with everyday working activities such as disbursing salaries to their workers, managing stock, and even settling utility bills. Mostly, they are small loans with faster repayment cycles that are generally business loans.
• Equipment Loans: These loans are taken in order to purchase the necessary machinery or equipment needed in your business. The equipment is normally used as collateral to the lender most of the time.
• Invoice Financing: This is another loan type that will benefit you if your business does not collect money promptly from your customers. You may advance the unsettled invoices and use them as a basis for obtaining funds.
• Line of Credit: A line of credit provides businesses with the ability to earn money when needed up to a certain limit rather than one-time upfront borrowing. It comes in handy for handling unanticipated expenses where by using this you can get the required amount immediately.
• Business Credit Cards: Business credit cards are similar to personal credit cards but are used more toward business expenses. They are ideal for managing small, recurring expenditures.

Steps to Apply for a Business Loan

Step 1: Determine Your Loan Purpose and Amount

Clearly outline why you need the money and how much you require before applying for an MSME loan. This is what helps in choosing the correct type of loan and demonstrates to lenders that you have a clear plan.

Step 2: Check Eligibility

Every lender has different eligibility criteria. Some of the common ones include:

• Age of your business, which is usually 1-2 years for established
• Minimum annual revenue requirements.
• Credit score, both your personal and your MSME’s .
• Business plan and profitability statements.
• Check these criteria among different lenders to know where you may qualify.

Step 3: Collect Documents

You will have to submit some documents to apply for the loan. These may include the following

• Proof of registration of the business (GST, PAN, etc.)
• Financial statements in the format of profit and loss, as well as balance sheets.
• Income Tax returns for the past 2-3 years.
• Account statements
• A good business plan that will outline how you will use the loan and repay it.

Step 4: Research Lenders and Compare Options

There are various loan products being offered by different lenders with different interest rates, terms, and conditions. Research banks, NBFCs, and online lenders. Compare factors such as:

• Interest rates
• Repayment tenure
• Processing fees
• Prepayment options

Step 5: Apply Online or Offline

Most lenders offer easy access through online applications. For an online application, you’ll simply need to visit the lender’s website, and through this website, submit an application form and then upload your documents. For the offline mode, you must personally submit your documents to a branch.

Step 6: Approval

The lender processes the loan application after you submit it. That may be where he will scrutinize your credit score, review your business plan, and perhaps other financial documents.

Step 7: Disbursement of the Loan

He will give you the terms and conditions of a loan when your loan is approved. The amount of the loan then goes into your account after you have signed an agreement.

Conclusion

Many MSME business owners may find it challenging to apply for a business loan. It could be either a lack of knowledge on the application or finding the perfect lending partner. The article will guide you on breaking down the process of applying for a business loan into manageable steps, thus making it more feasible. Begin by determining your financial needs and researching the types of loans available.

NBFCs have also emerged to be one of the primary working capital loan providers, unlike traditional banks. These lenders provide quicker processing, much easier eligibility criteria, and customized solutions for businesses that need access to the working capital loan through a traditional bank. Moreover, with their digital presence like online loan applications, digital KYC processes, etc; it was easy to disburse the business loan amount quickly into the bank account.