Until recently micro, small, and medium enterprises (MSMEs) and small and medium enterprises (SMEs) had difficulty in accessing formal credit facilities. However, with government initiatives and institutional lending, SMEs can avail of loans without much hassle.
While applying for a loan, you will require some documents. Here are some tips to ensure that the entire process is fast and tension-free:
Prepare a detailed business plan
The business plan must outline the project details, forecasted revenue, marketing strategies, and profitability. A feasible business plan reduces the lending risks, which ensures lenders of timely repayment.
Review your credit report
Almost every lender will look at your credit history and report to determine your creditworthiness. For an SME loan, CIBIL score is important, as it lowers the lender’s risk, and you can get funding at beneficial terms. Before submitting the documents, check the accuracy of the credit report and rectify any errors to avoid disapproval of your application.
Ensure that your financial statements are favorable
The historical income statement shows the business cash flows over the years. Similarly, the balance depicts the current financial situation of your venture. Having a profitable income statement and an asset-strong balance sheet will positively impact your SME loan eligibility.
Share details related to fund utilization
When submitting the documents for a business loan, it is necessary to clearly explain how the funds will be utilized. It is recommended that you include one scenario about the business’ future without the loan and another situation showing the venture’s potential growth once you receive the funds. This can play an important part in convincing the lenders that the loan will help your business to expand and grow while ensuring timely repayment of the borrowed amount.
Keep past income tax returns (ITRs) information in order
ITRs are a reflection of how your business has performed in the past. If your ITRs show a consistent increase in income and profitability while maintaining lower expenditure, the possibility of loan approval significantly increases.
Financial institutions offer different types of business loans, catering to the short-term, medium-term, and long-term requirements of organizations. It is advisable to understand the various facilities available before you submit the SME or MSME loan documents. This will allow you to apply for the loan that best suits the needs of your business.
Private and public banks and non-banking financial companies (NBFCs) like Mahindra Finance offer business loans. You can visit Mahindra Finance’s website to know more about SME loan solutions, interest rates, eligibility norms, and other terms and conditions.