Guide to first time SME loan Applicants

Availing a steady source of finance is crucial for any business to get off the ground or for that matter, even keep operating. A business loan can be a boon for entrepreneurs who seek to avail capital, be it for an existing business or expansion. Also, it isn’t always feasible to plough in personal funds each time the business needs capital. That is when availing a loan for business helps maintain a boundary between personal and professional finances. Such business loans can be used for various business purposes like working capital requirements, buying new equipment, hiring employees, upgrading infrastructure, etc. However, at times due to unavailability of sufficient funds, it can hinder the growth of your business.

For a first time applicant of a business loan, the following points must be kept in mind-

Identify the reason and quantum of funds required

Why an entrepreneur obtains funds is naturally known by them, but it is not true in case of a startup entity. Startups need to plough in funds in every aspect right from the human personnel to actual product or service development. While it seems easy, it is not the case when every area of the business has equal growth potential. It is when the entrepreneur needs to determine where the business finance so obtained should be allocated. Preparing financial statements helps attain a clearer picture of the same.

Identify which loan suits you best

Borrowing can be in various forms such as in personal capacities by the owners or in a formal and organised way from financial institutions. Organisations in their first year find it difficult to obtain loans, and that is when one ends up availing finances from unorganised sources like friends, family, crowdfunding or credit cards. It is when eligible businesses have an advantage in availing business finance by way of SME loans.

Have a realistic estimate of borrowing amount

It is a common notion for the entrepreneurs to assume that banks are not willing to lend them loans, whereas it is not the case. The banks would want to give the business more loans but keeping in mind the repayment capacity of the business venture. This is where businessmen need to make realistic estimates for the amount of finance that can be obtained from financial institutions.

Keep in mind the various alternative sources of finance

Finally, entrepreneurs should remember that banks aren’t the only source from where loans for small business can be obtained. Government startup schemes, non-banking finance companies (NBFCs) are also some modes that can be used in financing the business.

These above points can help you make a wise choice in obtaining loans for the first time from financial institutions. Before finalising on a particular lender, make sure you compare the various loan offers provided by different lenders. Make sure you avail loans at a competitive borrowing rate that will help you avoid any hassle of repayments.