Starting a new business has many challenges, especially in securing funding. Whether you need capital for product development, hiring employees, or purchasing real estate, a small business loan can provide the financial boost you need. Today, with the ease of digitisation, when you apply for small business loans, it has become simpler than ever before.
This guide explores the different types of small business loans available and discusses some crucial do's and don'ts to remember before applying. By understanding these key factors, you can ensure that your loan application is successful and sets your new business up for success.
Before you apply for small business loans know its different types
Before you apply for small business loans and explore the do's and don'ts, let's take a quick look at the various types of small business loans available:
1. Working capital loan:Â
These short-term loans are ideal for meeting daily business requirements such as purchasing raw materials or paying employee salaries. The maximum loan amount is Rs. 40 Lakhs with a tenure of 12 months.
2. Letter of credit:Â
This bank document guarantees payment from the buyer to the seller in cases of imports and exports where suppliers deal with unknown buyers.
3. Invoice discounting:Â
Businesses can generate funds by offering sale invoices as security instead of waiting for customers to make payments.
4. Loans under government schemes:
The government has launched several schemes to encourage small businesses, such as the Mudra Scheme under Pradhan Mantri Mudra Yojana and the Prime Minister Employment Generation Programme.
5. Term loans:Â
These are standard loans that need to be repaid over an agreed period and can be short-term, intermediate, or long-term.
6. Point of sale loans:Â
Startups facing a cash crunch can benefit from these loans, which allow them to divide a purchase into smaller payments.
7. Machinery loan:
Ideal for startups in the manufacturing industry, this loan helps finance expensive business machinery and equipment.Â
8. Overdraft facility:Â
Growing businesses often require quick access to funds. An overdraft facility allows account holders to withdraw funds exceeding their account balance.
Process for small business loan: The do's and don'ts
Now that we have an understanding of the different types of small business loans available, let's explore some important do's and don'ts before you apply:
1. Compare financial institutions: When applying for a small business loan, compare different financial institutions. Each lender may have different loan terms, conditions, and interest rates.
2. Have a plan and required documents: Before approaching a financial institution, it's essential to have a well-thought-out business plan. This will help you determine the loan amount and conditions best suited to your needs. Additionally, lenders will want to see your business plan to assess your revenue model and creditworthiness. Keep all necessary documents ready for a smooth loan application process.
3. Examine your financial needs: Before applying for a small business loan review your budget and financial forecast. Consider whether it is the right time for a loan based on your current financial situation and future projections. For instance, if you have new investors joining your business, taking on a loan may not be necessary and could add unnecessary debt.
4. Don't fixate on low interest rates: While low-interest rates are appealing, it's important to consider other factors such as loan terms, lender policies, and additional charges. Don't make interest rates your sole criterion for choosing a loan. Look at the bigger picture and make an informed decision covering all relevant factors.
5. Don't apply with multiple lenders at once: While it may seem like applying with multiple lenders will increase your chances of approval, it can negatively impact your credit score. Instead, carefully research and select one lender that aligns with your needs and financial goals.
By following these do's and don'ts, you can approach the small business loan application process confidently, and ensure that you make informed decisions that benefit your business in the long run.
Conclusion
When you apply for small business loans, it can be overwhelming, but by adhering to these do's and don'ts, you can navigate the process successfully. As you embark on this journey of securing funding for your new business venture, Mahindra Finance can be your trusted partner. With their expertise in providing tailored financial solutions to businesses across India, Mahindra Finance offers a range of small business loan options that cater to your specific needs. Take the first step towards securing your small business loan and contact Mahindra Finance today.
FAQs
Q: Can I apply for a small business loan online?
A: Yes, many financial institutions now offer the convenience of applying for small business loans online. This allows you to submit your application from the comfort of your home or office.
Q: How long does the process for small business loans take?
A: The process for small business loans can vary depending on the lender and the complexity of your application. On average, it can take anywhere from a few days to several weeks for approval.
Q: What are the eligibility criteria for a small business loan?
A: Eligibility criteria for small business loans may vary between lenders. Generally, lenders consider factors such as your credit score, business plan, cash flow projections, and collateral (if required).
Q: Can I apply for a small business loan if I have bad credit?
A: While having a good credit score increases your chances of approval, some lenders offer small business loans specifically designed for individuals with bad credit. However, these loans may have higher business loan interest rates or stricter repayment terms.
Q: Is it possible to get a small business loan without collateral?
A: Yes, there are options available for unsecured small business loans where collateral is not required. Lenders assess various factors such as cash flow, credit history, and financial stability when determining loan eligibility.
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