If business expansion is on your card, then the very first thing you will look for is ‘Money’. Without sound financial resources, you can never be able to take your business to a new level. Even to start a new venture, you need substantial volume of money. Money arrangement or business funding can be done in any of two ways – investing proprietor’s funds or equity and business loans.
Nowadays it has become quite easy to source business loans as a myriad of lenders has come forward with their financial offerings for the entrepreneurs. Before you take out business loan, it is important to have valuable insight into the details as to eligibility criteria, interest rate, repayment terms and how the loan works etc. Also you must not forget that the lenders will verify the details provided by you. However, this verification job is entrusted to a third party to facilitate easier and faster loan processing. Let us now have a hard look at the rules and regulations as followed by a lending house to grant business loans to the applicants.
Criteria to Get Business Loan
Every lender you approach for business loan will always want to scrutinize your business plan. It is quite logical on part of the lenders because they want to be sure that you have a potential business plan which – if gets translated into reality – will fetch enough money to pay them back. So, your application and business plan must end on an impressive note. Some of the vital rules to follow have been enlisted below:
• Your business plan must project a concrete idea and should be explanatory enough to drive the nail home why you are seeking for merchant loans.
• Submitting a cash flow statement is a must. It is because the lenders want to look into the status of cash flow at the initial stage of your business. Poor cash flow is a real turn-off for the lenders. So, prepare a statement that is risk free and can impress the lenders easily.
• If it is not a start-up business, then attach some vital details regarding balance sheet for the last 3-5 years, statement for profit and loss and such other important documents to make your point stronger.
• A credit report is often a mandatory requirement to get business loans. In that case, a credit report from CRISIL or ICRA or any other approved rating agencies will enhance your chance of getting business loan.
Requisite Documents to Get Business Loan
Requirements vary from one lending house to another but the basic requirements are common to most of them. You need to provide business address proof, PAN card or VAT registration number. All these details will be verified to be sure of your authenticity. If you are the sole proprietor of the business, then driving license along with PAN card too need to be submitted. The bank may also ask for your profit and loss statement of the previous 2-3 years to check if your company has registered benignly sustained growth during those years.
5 Tips to Find Money
1. Start at the bank
Always start your search for financing with the bank. Sometimes banks provide loans on favorable terms. Anyone who owns the property and who has not been heavily financed can already come up with the desired amount by raising the mortgage. Cheaper borrowing is almost impossible. Even if the contact with the bank does not result in a credit, the exercise has not been in vain, because at least you have a frame of reference about it. ‘If the bank says: I do not want to go beyond X percent, you know about how strong or how weak you are and where you should start from. That offers a hold.
2. Money from the wholesaler?
You do not have to search long on the internet to find parties that want to finance. Also wholesalers and other suppliers say they want to finance the catering industry. That does not have to go wrong, but it is important to remain business. Those who are funded by wholesalers are in a poor negotiating position. Sometimes it seems that you have made a good deal. When you pay seven or eight percent interest you cannot say anything about it, but remember that you are not or much less eligible for discounts and other favorable delivery conditions. It may just happen that you pay 20 percent more for the products that you buy due to this financing. Do this well and let yourself be advised by an expert.
3. Handle the correct order
Set the steps to be taken in the correct order. First deepen in the market, ask for quotes from different suppliers, choose one or more, negotiate with that company until you have a net amount, and then start with that funding. Then you are much stronger than when you say: I have no money, but I do want to open a new branch, can you finance me? If you do that, you are very dependent on it and you also receive the bill for it.
4. Avoid a hefty fine
Those who are funded must calculate all conditions. For example, note the penalty clauses. They sometimes take on intense forms. Some lenders require a fine when early repayment is made. That fine may amount to ten percent of the credit. Suppose the entrepreneur sells his company early and the credit amounts to half a million. Then he has to pay huge fine.
If it concerns a refurbishment, the contractor may in some cases provide a loan. Construction is then pre-financed by the contractor provided that the contractor is financially capable. It is known that construction is going through difficult times and that construction companies have much to spare to keep their people at work.