Taking out a loan can feel like a big decision and it is! Often, an offer comes in the mail for...
Applying for a business loan is a big step in your entrepreneurial growth. Since the way your business will evolve depends on whether you get the financing or not, it’s important to take the time to prepare a proper application. Continue reading to see the essential elements that your business loan application must include.
Almost all applications for a business loan require you to submit a business plan. This allows the bank or another lender to evaluate whether you have an economically viable business, which will secure that you are able to pay back the loan. While it may be very clear in your head, it’s essential that you also translate your ideas on paper and the bank can see your vision. Here are some of the principal sections to include.
An executive summary gives a short overview of your entire plan. It should talk about the business idea, how it will be or is implemented, cover some highlights on the finances of your business, and talk a little bit about the team that works on it. In essence, it’s a summary of everything you’ll write in the other sections. This might be the most important part of your business plan since most people will only read the executive summary in detail.
After the executive summary, comes the business description. Make sure that it is clear and includes all of the main aspects of the business. For example, if you are going to make a product – how are you going to produce it, will you need partners, how will the distribution look like? On the other hand, if it’s a digital platform, how will you generate revenue, how long will it take for the development, etc.?
It’s important to demonstrate that you have a strong team behind the business. Principally, this should include the profiles of the executive team, including the CEO, the CFO and anyone else involved at the higher level. Make sure to add a description of their previous achievements to demonstrate their ability to run the business.
This is the one section that the bank will scrutinize in every possible detail. While the idea is important to them, they really want to see how much you need to invest, what your regular expenses will be and how will you be making revenue.
Lastly, include a marketing or promotional plan. How will you get your product or service out there? If you are going to use social media, then how much will it cost and who will be running it. This should be a very clear and concise section, which preferably has an estimated conversion and return on investment rate.
In addition to your business plan, don’t for getting to include some of the more generic documentation. While some of these may be readily available, like your identification, you should give yourself time to get the rest. Before you being your application process, ensure that your business registration documents are in order and you have any other requirements that the bank asks for. Here are some of the basic documents that a lender will ask or:
Prior to starting your application with the bank, it’s probably a good idea to be well-prepared. Remember that the more times you apply for a loan, the more your risk to lower your credit rating. Additionally, every delay sets your business back in terms of production and revenue. Here are some things you should consider doing before submitting an application.
A large portion of the decision-making process for the lender will depend on your current CIBIL score. So before you even think of applying, it’s probably a good idea to check where you stand with your credit score. To do this, you can request your credit score and report from TransUnion for about 550Rs. Keep in mind that a good credit score is anything 750 and above. If you are well below that, it might be challenging to get a loan.
Every time you apply for a loan, your credit report registers this. If you have too many applications, then your credit score could go down. So the best option is to shop around first before you begin submitting an application. Look for banks online first and then set up a few meetings with representatives to see if you are comfortable with their approach to business lending.
Last, but certainly not least, you should consider hiring someone to help you with the application process. Oftentimes, business owners are really good at their side of the business but are not the best at finance or writing. The business plan is an essential section in your application, so it might be a good idea to have someone help you out in writing the business plan. It may also be helpful to hire a finance analyst to aid with the budget section of your Business Plan.
Applying for a business loan is no small task. It requires you to dig deeper with your business idea and truly demonstrate that your business is credit-worthy. It’s essential to take the time to prepare a proper application package, which will convince the lender to inject the much-needed finance into your business. Don’t forget to submit a complete application, since this will reduce the amount of time it takes for it to be processed. The faster you can get funding, the sooner you can start growing your business and generating revenue.