External financing is a common struggle that many small businesses face on a day-to-day basis. If the small business is newly set up, it may not be eligible for availing high-value financing. Also, businesses that do not have the necessary assets to pledge as security cannot avail a secured loan. However, personal loans have made it easy for such businesses to get the necessary funds. You can apply for a personal loan through a loan app and use the funds for financing your business.
A personal loan comes with high flexibility and unrestricted end-use. This means you can use the loan amount as and when you want. In addition to this, it has simple eligibility and minimal document requirements that make availing this loan overly simple.
You can easily avail an online loan through a loan app or apply for it by visiting the lender’s website. You may also visit the nearest branch and apply for a personal loan offline. With so many options, today, availing a personal loan has become easier than ever.
Read on to know 5 loan tips that every small business must know –
5 Crucial Loan Tips to Follow for a Small Business
- Keep your credit score at par with the minimum requirements
While applying for a personal loan through a loan app, you must make sure to maintain a high credit score. Since personal loans are unsecured in nature; you don’t have to submit any collateral. However, you must have a high credit score to qualify for this loan.
Your credit score helps assess the lender your creditworthiness. Based on your past credit behaviour, your repayment habits and your ongoing debts, the credit bureau assigns you a credit score. In case, you have a poor credit score, you must work towards improving it.
- Arrange all necessary documents before applying
Your documents create a significant weightage when the lender is assessing your loan application. These documents are mandatorily checked by the lender before approving or rejecting your loan application. You must thus keep all these documents ready before applying for your online loan.
These documents are usually related to the KYC requirements. Identity proof, address proof and proof of income. This may be proof of business existence, income tax returns, financial statements and bank account statements. In addition to this, if you have a fixed salary or you are working part-time, then make sure to mention that
- Check and maintain a balanced mix of credit portfolio
The borrowing business must also maintain a balanced mix of credit portfolios including secured and unsecured advances. Doing so keeps their credit risk well distributed across their loan portfolio. So, you must check the credit bag your business carries before applying for a new advance on a loan app.
There are different borrowing options that a new business may explore. A business line of credit, term loan, and loan against property are some of the other options. Of all these, a personal loan is the easiest to avail. However, you must check all your options.
- Take steps for overhead reduction
Another step you can take to improve your chances of loan approval relates to keeping a check on the business overheads. This helps keep your cost of operation low and helps maintain a healthy cash flow.
Some ways you can attempt to keep your business overheads low include enforcing timely payment, optimising labour inclusion, keeping the payment cycle long, etc. Having well-managed finances will help you avail a credit with ease.
- Create a detailed financing and repayment plan
When applying for a personal loan for a business through a loan app, you must also have a defined business plan in place that represents your future vision for the organisation. Go for a sensible assessment of how your business would fare based on the current socio-economic conditions and assess its future scope of expansion.
In addition to this, you should also create a repayment plan for the loan right at the beginning of the borrowing process itself. Identify income sources that would be allocated for repayment and make sure to have a foolproof plan. Taking such measures helps represents thoughtful borrowing, and increases the chances of easy loan approval for your business.
Along with these, you may also make sure that the cash flow of your business is maintained and that all existing repayment liabilities are met in time. You can take necessary measures to realign your business finances in time before sending your loan application so that it reflects positively on your loan application. Accordingly, submitting the necessary documents will help you get the loan approved with ease.
Availing a personal loan for business through an online loan app can be useful typically when seeking time-sensitive financing. These apps have simplified application processes which promote easy and fast loan application approval. Typically, if you have met all eligibility and document requirements laid down by your financial institution, the approval comes within a few minutes of applying for the loan.
However, before making your borrowing decision, you must conduct thorough research to choose the right lender. Work on your credit profile, check your loan eligibility and make sure to have a repayment plan in place. In addition to this, if your business is very new and you do not have a stable source of income, then you may consider adding a co-borrower to your application. Make sure your co-borrower has a good credit score and a stable source of income.