If you are heading a large business needing expansion of a particular section, or a small business owner wanting to scale, or a budding entrepreneur, your priority is to secure funds at the right time. We want to focus on the term ‘right time’ because if a financial institution is unable to disburse funds at the right time, you may lose out on a lucrative opportunity.
Now that you understand the significance of timely disbursal of loans, you need to ensure preparedness during the business loan application process. No one wants a loan application rejection as it will lead.
Let’s say that your organization is ready for new business loans, but you are unsure about the subsequent process, this article can get you covered. Here is a list of five factors that influence your business loan approval.
Factors that influence business loan approval:
A healthy credit score/history:
The most basic and obvious factor for a successful loan application is a high credit score. Financial experts suggest that it is essential for a business owner to keep the personal credit score as high as possible. When it comes to small business loans, financial institutions take into consideration the personal credit score of the business owner.
The borrowers with a credit score of 720 or higher get better interest rates. Alternate lenders or NBFCs try to fill in the void created by financial institutions by providing new business loans to borrowers with a credit score as low as 500. Hence, small business owners with low credit scores prefer private NBFCs for ease & speed of funding.
However, good credit history is always a prerequisite for easing out the approval of new business loans. Timely payment of dues, transparent transactions, invoicing of every purchase with dealers are something that can help you build a good credit history.
Age of business:
Occasionally, banks & NBFCs see the age of business, cash flow, statement of transactions, and other factors in approving your business loan. For small business owners, the APR or annual percentage rate is usually higher.
Once your financial partners can see some traction in your business, they will follow up with better interest rates. However, many private lenders specifically provide small business loans. All you have to do is to gauge your requirements using a business loan calculator.
Financial institutions reduce lending risk by asking small business owners to use their assets as collateral to secure the business loan. Not being too rigid, lenders allow small businesses to use their stock, equipment, and similar business assets as collateral. Alternatively, institutions like NBFCs offer collateral-free small business loans as well.
Type of business:
The type of business plays an impending factor in your loan application. If your financial partner considers your kind of business to be riskier, then things may get slower, with financial institutions charging higher interest. Complete market research about the potential of your business can be used to convince your banking or NBFC partner to believe in your vision.
If you are a new business owner who would like to get started or an existing business owner who wants to expand the organization, you need a plan in place to show to the banks or NBFCs. If the business plan is impressive enough, then the following process is typically faster. You need to explain the purpose of the loan, vision, and other factors to structure your business plan well.
The above factors play an important role in making your loan application faster and more effective so you can focus on your business aspirations. Also before processing for the loan must check the business loan eligibility for easy approval. Having a thorough understanding of the lenders’ requirements can make things more comfortable during the loan application process.