Quick guide on How to get Business Loan !
Getting a business loan from Banks/FI depends upon no.of aspects.
Most essentially for granting a business loan, banks often demands collateral for the money given to a company. However, there is also a collateral free facility specially designed under the Credit Guarantee Fund Trust (CGTSME) for Micro and Small Enterprises (MSE’s). The CGTMSE scheme comes under SIDBI and Ministry of Small and Medium Enterprises.
Credit History: If you are the sole proprietor of your business, your individual credit profile will be gauged to judge the credit rating of your company. In other forms of business various agencies like Crisil and Care give out credit ratings based on the repayment and financial strength of a company. The credit score maintained with CIBIL is a very important part of the process and is closely linked to the amount you can raise as loans from banks. A not so good rating may lessen the amount of loan.
Security: Banks would need a security in the form of collateral for the loan they would extend to you. It can be in the form of residential/commercial/industrial property or liquid securities. Banks want to cover their risks when extending a loan and hence they demand a property or an investment that can help them recover the money, in case you default.
Financials and Project evaluation : Banks will also review and assess your financial accounts with great thoroughness to gauge the financial health of your company. If the company is already saddled with debt, cash crunch, low cash flows, banks may curtail the amount they extend as a loan or even refuse your request all together. Banks also look at the amount of capital you have put in, the revenues you have generated and taxes paid. Banks will also ask for a detailed plan on why you need the money, how you plan to utilize it and how much income you would likely to generate.
Nature of your business: Lastly it also depends on what business you have. If you are in manufacturing space, it may be a tad easier to raise the amount you want from banks. On the other hand, if you are a startup or a services company that has little or no collateral to provide, the amount you can raise can be significantly lower. Banks also look at different sectors and its potential to do well
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