Table of Contents
- Introduction
- SME loans: What are they?
- What are the criteria to consider before applying for a business loan?
- Age limits
- Analysis of Income statements
- Credit analysis
- Knowledge of Interest rates
- Documentation
- Proper design of the business plan
- Insurance advantage
- Online application
- In a nutshell
Introduction
The pandemic taught businesses to give their working capital more attention. In today's environment, every business must prepare for expenditures including inventory, equipment, expansion, marketing and much more. This requires funding. Personal savings are one option. Another option is to avail a business loan. Individuals can go to physical branches or opt for an online business loan. However, like any loan, business loans have terms and conditions. Let's explore the business loan criteria individuals must know before applying for an SME loan.
SME loans: What are they?
SME loans, as their name implies, are designed for smaller and medium-sized enterprises. A business loan is an unsecured loan given by a financial institution to a small business to fund its working capital needs. As per the loan amount requirement of the business, the monthly payments are fixed during the entire loan term. Business loans can have the following benefits for a business:
- An advantage of getting a business loan is that the business does not lose control or ownership. A business owner does not have to worry about losing equity when taking out a business loan.
- Flexible repayment schedules are another advantage. Business requirements differ. Therefore, lenders provide the option of tailored business loans, including amount and tenure based on the business's needs. For example, if an individual meets the Shriram Finance business loan eligibility and criteria, then he/she can benefit from the flexible repayment tenure varying from 12 to 36 months, as per their profile.
- Businesses need to have access to funds continuously at different stages. A business loan can help them get this funding quickly. Compared to raising funds from venture capitalists, the disbursement process is easier and faster. It is possible to receive the loan approval within 24 hours in some cases.
- In today's market, many financial institutions offer SME loans. This allows borrowers to take advantage of competitive interest rates. A good example of the same is the Shriram Finance business loan interest rate. In addition, borrowers can select from a range of loans that match their needs.
What are the criteria to consider before applying for a business loan?
The application for a business loan is approved quickly if the borrower meets the eligibility criteria and provides the necessary documentation. A primary rule is that the loan taken must be utilized for business only and not for any other purpose. The following are important things borrowers should know before applying for a business loan:
Age limits
It is a common business loan criteria for lenders. Every company has its minimum and maximum age limits for availing loans. Financial institutions and other lenders will ask for proof when applying for a business loan. According to the Shriram Finance business loan eligibility and criteria, the minimum and maximum age requirements are 23 and 65 years old, respectively.
Analysis of Income statements
Next, lenders make sure the borrower has good financial standing. Organizing the business statements and financial accounts in advance is therefore advisable. These are checked to ensure that the borrower has sufficient funds to repay the borrowed amount without defaulting. Additionally, the borrowers need to declare any prior loan commitments also while applying for a loan.
Self-employed borrowers, professionals, partnerships, and private limited companies may be subject to different checks.
The following income requirements apply to Shriram Finance loans:
- For self-employed individuals - Minimum annual turnover of Rs 10 lakhs or more.
- For professionals- Minimum annual turnover of Rs10 lakhs or more.
- For sole proprietorship or partnerships or private limited companies- Minimum annual turnover of Rs20 lakhs or more.
- The business needs to be in operation for more than 3 years.
Credit analysis
The creditworthiness of a borrower is based on his prior experiences with loan repayments and whether he has defaulted on any of them. All lenders check this criterion before granting a loan. To qualify for their preferable loan amount and other terms and conditions, borrowers need to maintain a good credit rating. A healthy credit score also represents the financial discipline of the borrower.
Knowledge of Interest rates
With the economy growing and multiple lenders on the market, borrowers can get attractive interest rates if they do their research properly. It all depends on the EMIs which a borrower can afford. The Shriram Finance business loan interest rate is one such example of attractive interest rates. Its interest rates begin at 15% and vary for SMEs, MSMEs, and other terms.
Documentation
The lender will ask for the proof of all the information submitted by the borrower before approving the loan. Here is a list of general documents required for a business loan application.
- Personal KYC documents like Aadhaar card and PAN.
- Valid address proof like Passport, driving license, or gas bill.
- 2 recent photographs
- Proof of Income
- Business registration certificate and PAN
- Last 6 months bank statement of current account
Proper design of the business plan
For a business loan to be approved, the purpose must be clearly defined. It will include everything from the amount needed to the purpose of the funds and how the business plans to repay them. It is, therefore, necessary to prepare a business plan that shows the strengths of the company. Among these are target markets, credentials of the key management overseeing the project, industry data, and more. This information helps lenders determine the risks associated with the business.
Insurance advantage
Since the pandemic, everyone has understood that life is uncertain, including financial institutions and other lenders. Thus, before granting a loan, they check if the borrower has insurance. The insurance cover reduces the risk of the lender recovering the amount in case of any unfortunate incident.
Online application
Another thing that borrowers should know is that in this digital age, they can apply for an online business loan. Borrowers can check their eligibility easily, submit the necessary information, and then quickly find out how much they can borrow and what their interest rate will be. Now, to apply for business loans online you will require computer knowledge. For this, many companies even offer the facility of online consultants.
In a nutshell
Having read the above article, you will have a good idea of the important business loan criteria to consider. Unlike before, securing loans is not a taboo, but an asset for the growth of the business. However, it is still a debt and the borrower needs to maintain financial discipline. To remove your financial worries and apply business loan applications conveniently, you can always consult a financial advisor.
