5 Things to Know Before Applying for A Startup Business Loan

Gathering funds for a start-up business is similar to setting the foundation stones for a new house. Everything that follows results from the decisions a person makes in the initial phase. Just like building a house on an improper foundation is challenging, managing a business with a shaky financial base can also be challenging.

Here, we have highlighted the points to keep in mind if you opt for a start-up business loan.

Things to Keep in Mind Before Applying for a Start-up Business Loan in India

Obtaining the required funds is one of the main obstacles that start-up business owners face. As a result, many business owners decide to get it through small business loans or merchant cash advances, which can pay for the expenses, stocks, and many other necessities for a start-up business.

Below are five things that every applicant should know before applying for a start-up business loan in India:

1) Acquiring funds to start a business can be challenging

Young entrepreneurs frequently have a more challenging time getting finance. Poor business plans, bad personal credit histories, and the absence of the required documents and related information are among the factors that cause the rejection of loan applications.

Here are some pointers for those planning to apply for a unsecured business loan for the first time:

– Make sure that your CIBIL score is enough for a business loan. Having a good credit score allows you to obtain funds at a low interest rate.

– Budding business owners should make a business plan and produce the necessary details along with the loan application.

– Based on your business plan, choose a loan amount that will be needed for your start-up business.

2) Know what a personal guarantee is

A personal guarantee is a legal agreement between the business owner and the lending institution that essentially says that if the business fails to meet the loan terms, the lender holds the right to confiscate all valuable assets, such as real estate, inventory, and automobiles, and dissolve them to recover the unpaid dues.

This means when a company fails to repay the debt, the personal assets of the primary applicant will be seized. With small business lending, the lender frequently needs some security, and a personal guarantee does that.

3) Make sure you have all the documents ready before applying for a start-up business loan

Getting a start-up business loan has a lot of advantages. However, the application procedure can be complicated. It involves a lot of information and data, and many business owners and entrepreneurs face hurdles during the application procedure because they need more documentation. The most frequent causes for the rejections are missing information and incomplete supporting documentation.

In this regard, one can opt for business loans from reliable lenders at affordable interest rates. Such credit options allow borrowers to meet necessary business expenses without financial burden quickly.

However, if you’ve decided to apply for a start-up business loan, you will want to move through the overall application approval procedure as quickly as you can. There will be varied documentation requirements for qualified loan applicants depending on the lending institution and type of loan.

You should obtain the following basic documents and keep them handy before applying for a start-up business loan:

– Bank statements

– Credit reports

– Collateral documentations

– Income tax returns

– Debt schedule

– Financial statements

– AP and AR reports

– Business License

– Business plan

Further, as an applicant, you will need to produce the following documents for the identity verification purpose:

– Identity proof

– Address proof

– PAN card

– Business proof

4) An adequately documented business plan

A proper business plan is crucial in starting a new business venture. The strategy will serve as a detailed road map for both long- and short-term goals. Business plans are frequently essential for lenders to support your start-up business. Every time a lender grants a loan, they take a risk and want to be sure you can repay the borrowed sum when the time comes.

They will want to know about your business, your goals, and how you plan to use the funding. The best and most straightforward approach to convey this information and provide them with the knowledge they need to decide whether or not to grant you a sizable amount is through a business plan.

Compared to other small business loans, start-up business loans possess more risks. This increases the value of having a business plan. However, just like any other loan application procedure, lenders will review your credit report, financial documents and credit history and assess your creditworthiness accordingly.

5) Maintain good terms with the lending partner

After obtaining a loan, maintain a good relationship with your lending partner. Factors such as the utilisation of your loan and the state of your company’s finances are monitored. Make every effort to keep a good relationship with your lender by using them as a resource. This puts you in a position to receive guidance on customer solutions, equipment finance, payment solutions, credit card acceptance, and cash management.

With the Government’s “Make in India” policy, this industry will play a significant part in encouraging both Indian businesses and multinationals to establish manufacturing facilities in the country. After US and China, India now boasts its position as the third-largest start-up ecosystem in the world, courtesy of the 83 businesses that have joined the exclusive Unicorn club. Nevertheless, due to the lack of enough funds, many start-ups are forced to shut down.

In this context, you can make your company thrive in the market with the help of a start-up business loan. Additionally, numerous government programmes provide small business loans at low-interest rates. Therefore, before applying for a start-up business loan, consider the mentioned pointers and make an informed decision accordingly.

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