Before providing any type of loan, banks normally do it’s own due diligence and when fully satisfied, only then, they provide loans. Similar is the case with business loan. In order to get business loan from banks and NBFCs, following criteria may be fulfilled by every borrower.
- Credit Report
Banks and financial institutions looks for financial worthiness of borrowers as well as his past borrowing history to know whether there was any default in repayment of loans earlier. Therefore, credit history or credit report is very important for bankers to make a decision as to whether to grant Business loan or not. Therefore, it becomes major factor in acceptance or rejection of loan application.
- Feasibility of Business
Before granting Business loans, banks look for business feasibility. This may be in form of financial feasibility and/or legal feasibility. Every businessmen seeking business loans has to submit historical audited financial statements as well as projected profit and loss account and balance sheet which will provide guidance to lending banks whether business or project is feasible in future or not.
- Business plan:
Another important and very crucial document is business plan which is required to convince the lender to grant loans. Business plan should be quite comprehensive and should include all the aspects like financial projections, raw material requirements, manpower requirement, marketing, list of machinery and equipment required, total cost of project and means of financing etc.
- Collateral Security
In case of secured loans, banks mortgage the collateral security provided by the businessmen. Therefore, it is very essential that any movable or immovable security provided by businessmen is free from any encumbrance and are legal in all aspects. In case, businessmen has provided collateral security and later on at time of legal and technical valuation, the same is found to be not valid, business loan will be rejected by the banker.
What are the benefits of Business Loan?
One of the major benefits of business loan is that it can also be unsecured in nature. It means that no property would be required to be mortgaged in order to avail unsecured business loan. Some of the other benefits of business loans may be summarized as under:
- It may help to increase business cash flow
- It assist in acquiring or taking on rent new or big office premises
- Helps to renovate factory or office premises.
- Helps in purchasing, leasing or repair of plant, machinery and equipment.
- Helps businessmen to upgrade/purchase latest technology
- With more funding, more stock may be kept
- With business loan, company may hire high end employees and staff
- Helps in expansion of business in terms of new products as well as new geographical locations.
- With more funding, it becomes easy to look for servicing bulk orders by purchasing more raw materials.
- Businessmen may make use of better business practices and go for automation of processes by making use of better software, latest techniques.
- There may be delegation of authorities and different departments may be created in an organization which will increase the efficiency and save time and cost. Also, accountability may be fixed for particular department.