Synopsis: In today’s article, we will talk about the steps involved in applying for a business loan when starting a new business venture.  

Ambition and grit are some of the most prized and essential entrepreneurial traits, but these in no way guarantee access to the capital required to embark on the start-up journey. Potential business starters need to undertake multiple steps to get their business off the ground – raising funds is one of them. 

How to Get a Business Loan – A 7-Step Checklist 

From incurring preliminary expenses on establishing the company base to spending money on the acquisition of plants and machinery, a new business requires funds at every stage of development. While there is a plethora of financing options, sourcing a business loan is usually the most suitable option

However, navigating the process of applying for a business loan can be arduous and cumbersome. So, below we elaborate on 7 easy steps that a new business owner can follow to avail of a start-up business loan. 

Step 1: Calculate the Loan Amount Required 

First and foremost, new businesses should estimate the amount required to get their business running. Understandably, it’s not easy to accurately estimate the funding required to start and grow a business.  

But business owners can initiate the process by first estimating the preliminary expenses that will be incurred in establishing the business. Some of these common expenses include the purchase of equipment, machinery, vehicles, computers, initial inventory, raw material, basic office supplies, and expenses on obtaining permits and licenses.  

Then, an estimate can be added for future maintenance and repayment expenses. Once calculated, a start-up can get a fair idea about the loan amount required. 

Step 2: Finalize the Business Loan Type 

After determining the required capital, new business owners must select the type of business loan best suited to achieve their growth goals. In addition to applying for a simple business loan with no end-use restriction, business owners can also explore the option of applying for a working capital loan, equipment financing, or a line of credit

Step 3: Write a Detailed Business Plan 

When applying for a business loan, most lenders generally demand a detailed business plan. That said, a solid business plan represents the company’s roadmap for the future and will carry information about revenue streams, cash flows, expenses, and future investments. 

Lending institutions rely on a business plan to gauge whether the new business is indeed commercially viable. While analyzing a business plan, lenders primarily focus on the business’s unique selling point (USP) and whether there is a demand for it in the market. They also look at future projections to determine how quickly the business will yield profit and scale its operations. 

Lenders may also require business owners to already own all the necessary licenses and permits required to operate their businesses. 

Step 4: Check Eligibility 

Post the creation of a business plan, new business owners must verify if they are eligible to avail of a business loan. While the eligibility criteria differ from lender to lender, all lenders commonly expect a high CIBIL score (700+). This rings especially true for businesses yet to hit the ground running, as they have no financial history of income and repayments. You can find ways to improve your credit score here

Other eligibility criteria could include a minimum age of 21 years, Indian citizenship, and some prior business experience. Some flexibility in these conditions may be offered to women looking to kickstart their businesses. 

Step 5: Evaluate Different Lenders on Terms Offered 

Based on the eligibility criteria met, a start-up may qualify for a business loan through multiple lenders. Hence, it becomes imperative to compare lenders on various parameters, including interest rates, prepayment penalties, and foreclosure charges, to find the best fit. 

As per the latest RBI guidelines, lenders are mandated to declare annual percentage rates which disclose the all-inclusive cost of a loan. Furthermore, new businesses must evaluate lenders based on their reputation and recovery methods. This information can be gathered from customer reviews. 

Additionally, lenders must be judged on the payment terms offered. While starting as a new business, the cash outflows may exceed the inflows or the business may not be able to generate regular income streams. In such cases, it becomes pivotal to go for loans with more flexible repayment terms. 

Step 6: Prepare a Documents Checklist 

The next step in the loan application process is to prepare a set of documents required at the time of submission. These document requirements will vary per the lender and the business loan type. 

Traditional banks typically have heavy documentation and KYC requirements. They prefer not to lend out to MSMEs with little to no formal credit history. A start-up can then alternatively either apply for business loans under various government schemes or can apply to financial companies, like Protium, that provide unsecured loans with minimal documentation. 

Some of the common documents demanded by all lenders include identity proof, income statements, ITR filings, bank details, financial projections, etc. You can get a complete business loan documentation checklist here

Step 7: Apply for a Business Loan 

After selecting the lender and business loan type, business owners are now in a position to submit their application for a loan along with documents for verification. At Protium, you can submit your business loan application both online and at any of our physical branches spread across the country. 

Kickstart Your Business with Protium Today 

Undoubtedly, applying for a business loan for owners who have little to no experience in running a business can be a harrowing task. As per Federal Bank’s Small Business Credit Survey, 36% of small businesses that were denied at least some of the funding they requested were denied because of their credit score. The matters are only made worse with lenders either refusing to entertain applications from new business owners or charging prohibitively high-interest rates to account for the increased risk of default. 

We, at Protium, are cognizant of such concerns and have developed proprietary models that enable us to offer business loans at affordable interest rates despite having no credit history. Apply today at Protium for a business loan with easy documentation and flexible repayment options. Or call 8828827800 and watch your business soar to new heights!