We’ve all heard that it takes money to make money and when it comes to growing your business, this is true. When looking to grow your business, you could use your own savings, borrow from family or friends, run a crowd sourcing campaign, or take a bank loan.
Bank loans are one of the most traditional ways of getting funding for your business and in this post we will take a look at what you need to know if you are considering taking a loan. It’s all about thinking smart and finding the best one that works for you.
Step 1: What is the amount?
When you’re building your dream, it is easy to sometimes get lost in the clouds. So in step one, you need to have your feet firmly on the ground as you decide how much you actually need. A great way to start is by making a list of the expenses you might have. Talk to a friend or family member that owns a business- ask them about the costs they expected and the ones that threw them for a loop. When you know how much you will need to spend, you will have an idea of how much to ask for from a bank loan.
Step 2: Think like a banker
As an entrepreneur, it is important that you are able to see all aspects of your business from various angles. You will need to play the role of planner, innovator and finance head. While there are different technologies such as invoicing apps or banking apps that can make your life easier, when it comes to a loan, you need to start thinking like a banker. Have a preliminary meeting with your personal banker and get an understanding of what is required from you and the questions you will need to answer when applying for a business loan.
Step 3: Find Your Credit Score
If you check the website of any major bank or lending organisation, you will notice that they have eligibility calculators. These calculators allow you to check your credit worthiness or how much a bank would theoretically be willing to lend you. Before you apply for a loan, you will also need to check your credit score. You can check this with the Credit Information Bureau India Limited (CIBIL) and then share it with your lender to prove your credit worthiness.
Step 4: Get Your Documents
In the old days, getting a bank loan used to be a long drawn out process of filling out forms and building mountains of paperwork but now the system is better streamlined. While different banks might have different requirements, here are the basic documents you will need to collect:
- ID Proof (Passport Copy/ Voter ID card/ Driving License/ PAN Card)
- Address Proof (Ration card/ Telephone Bill/ Electricity Bill/ Rental agreement / Passport copy/ Bank Passbook or Statement/Driving License)
- Bank Statements (Both personal and for your business)
- Income Tax Receipts
- Your business’s documents such as registration, VAT, TIN certificate etc.
- Profit and loss statements
Some of these documents will need to be self-attested or attested by a notary. With the right finance processing and accounting software, you will have visibility on how your business is functioning and where you need to inject funds. Banks looking to give you a loan will also have transparency on how your business functions, making you a better candidate to receive a loan.
Step 5: Know the terms
As with any business contract, you need to know the terms of the loan before you sign on for anything. In today’s world there are various loan formats that offer different terms. Some don’t require collateral or much paperwork and others have the options to submit documents digitally. It is important that you don’t just opt for the first loan offered to you or the one from your personal bank.
Follow these simple steps and you will make inroads into getting the funding your business requires.
Have you considered a line of credit?
Before deciding on borrowing money, however, consider two major factors:
- How big is your loan amount?
- How often do you need to make purchases (with the loaned amount)?
If you want to loan a reasonably medium or small amount and if you recognize the need to make multiple purchases along the venture instead of one bulk payment, a credit line will be a better option for you than a bank loan. A Line of Credit or Credit Line is an overdraft account without the hassle of collateral. It is a great choice for filling in financial gaps in your expenses, with more convenience than loans.
A credit line works very similar to a credit card:
- A credit limit is set for you, which you can borrow entirely or in parts according to your needs.
- The interest rates are variable and applicable only on the amount borrowed.
- You can secure a higher credit limit by submitting collaterals.
So, if your venture is about small transactions in steps rather than one bulk investment, choose a credit line which will help you:
- Avoid paying extra interest for unused money.
- Use amounts as per convenience.
Want to apply for a line of credit? Click here to learn how through Numberz.