How to Apply for a Small Business Loan

May 12, 2020

Small businesses are the backbone of most economies. Especially in India, small businesses, also called micro, small and medium enterprises (MSME), are integral because they employ about 12 crore people. Independently-run businesses like bakeries, grocery stores, restaurants, and small manufacturing units are all examples of small businesses.

After the worldwide outbreak of COVID-19, it is this sector that is likely to be most affected. Many businesses may not have sufficient cash to continue operations. In such a situation, many MSMEs may apply for a small business loan to function.

Requirements to Apply for a Small Business Loan

As per the government, any business with an investment of up to Rs.20 crores and turnover, or total sales in a particular period, of under Rs.100 crores, is called an MSME.

Compared to multinationals or large organizations that have easy access to funds, small businesses often depend on cash generated from everyday operations. From paying salaries to ensuring the availability of raw materials for production, this sector often needs liquid cash, and quickly. Most small businesses cannot afford to wait long periods for funds as delays can lead to business closure. Additionally, small businesses may not have sufficient collateral to pledge as security for a loan.

This is why small business loans offered by banks or other financial institutions are designed to be quick, effortless and affordable. You can use the funds from a small business loan to improve inventory, invest in new infrastructure or machinery, or simply to ensure smooth everyday operations.

Prerequisites for a Small Business Loan Application 

Once you have ensured that your business falls into the category of MSMEs, there are certain other criteria you must fulfil to avail a small business loan. While requirements may vary from one institution to another, here are certain aspects to keep in mind before you submit your small business loan application:

  1. Age – To be eligible to apply for a small business loan, the loan applicant must be at least 18 years of age.
  2. Business Plan – The applicant has to submit a viable business plan that outlines details about business operations, revenue generation, organization structure and other relevant information. This is especially important for startups.
  3. Business Documents – For a small business that is already operational, you will have to produce business-related documents such as registration papers, TIN number, PAN number, GST number, etc.
  4. Financial Documents – A small business loan application will also require all financial records such as balance sheets, profit and loss statements, cash flow details, and tax filings for the previous one to three years.
  5. Credit Score – The credit history of both the loan applicant as well as the business is extremely important, whether you apply for a small business loan online or physically at a bank. Any history of default may reduce your chances of getting a loan.

Apart from MSME loans sanctioned by banks or other non-banking financial institutions, the government also provides assistance to small businesses. SIDBI Make in India Loan for Enterprises, Pradhan Mantri Micro Units Development Refinance Agency (MUDRA)  Yojana (PMMY) and MSME Loans in 59 Minutes are some government schemes to support small businesses. While MUDRA loans are collateral-free loans at different stages of business, MSME Loans in 59 Minutes are designed for applicants to apply for a small business loan online.

Steps to Apply for a Small Business Loan

The application process for a small business loan is relatively straightforward once you meet the basic requirements.

  1. Visit the local branch of the lender you want a loan from to obtain an application form. Alternatively, you could apply for a small business loan online if the lender has the facility.
  2. Submit the filled-up application form along with the requisite documents. Most lenders will require:
    1. Identity proof of applicant, such as Aadhaar card, passport, voter’s ID or license
    2. Address proof of the applicant
    3. Six months’ bank statements
    4. Proof of business such as establishment license, trade license, sole proprietor deed, partnership deed, etc.
    5. Financial documents
  3. Submitted documents will then be verified. Time taken for verification varies from one lender to another and can range from 60 minutes to a few working days
  4. Once verified, the loan amount will be credited to the business bank account

An Alternative: Gold Loans for Small Businesses

For businesses that are unable to meet some of the requirements but still need money, gold loans are a viable alternative to small business loans. Gold loans offer high per gram rates that can help meet capital requirements, and a gold loan calculator can help demonstrate this with an estimate of the loan amount against the gold provided. Gold loans also have a lesser waiting time and require no business or credit score documents, just KYC details.

A gold overdraft facility can also be helpful to small businesses. It allows borrowers to pledge their gold beforehand to instant money transfer as per their requirements. The benefit of an overdraft facility is that borrowers only have to pay interest on the amount that is used. This can benefit small businesses greatly as it offers them a direct line of credit which is affordable, quick, and transparent. With fast, convenient, and flexible loans at affordable rates, you can ensure your business runs smoothly, with no hiccups.

For the lowest interest rates, quickest loan disbursal, and highest per gram rates, check out Rupeek’s gold loan solutions for your business needs.