Money makes the world go around, it has been said. It definitely does if you are an entrepreneur and are looking for SME financing in India. It could be for procuring material or for implementing expansion plans; an Small business loan is an essential requirement for a business. Before you apply for one though, go through this checklist of questions to understand your need and to understand whether you are fully prepared for any questions that may be asked of you.
Understand your financial requirements
How much funding do you need? Ask for the exact amount, plus a little more. If you are not sure, enlist the help of a financial expert who can help you arrive at a more accurate figure. Be prepared to answer questions, keep necessary documents ready and also be ready to hear a no.
Do not ask for too large a sum because the interest rates will put too much pressure on you. There is also the chance that the lender might not be able to give you the funds you need.
Have a business plan in place
You will be asked what you intend doing with the funds that you are asking for. Have a business plan ready. Don’t keep it vague and as a one-line statement. Have a business plan in place. Back it up with facts and figures. Talk about the market, how you plan to utilise the opportunity it presents, your future projection, how do you see the funds assisting you, etc.
How urgent is your need for a loan?
The less urgently that you need the loan, the better it is. Urgent loans always come with the caveat of higher interest rates. The more time you have for loan processing, the better the deal you will get. Also, more time before the loan means you can research the loan market thoroughly. You can work on your credit score. You might even be able to bring down the amount of funds that you need. If you have time before you actually need the funds, you need to start preparing for it now.
Collateral or collateral-free loans?
How confident are you about your ability to pay back the loan in time? You can choose between collateral and a collateral free loans one depending on your risk appetite.
With a collateral loan you get better interest rates and faster loan disbursal, but you have to pledge some of your assets against the loan. In the event of non-repayment, your asset can be seized and sold to recover the loan amount.
A non-collateral loan, on the other hand, does not require you to put up assets. But the interest rates are higher and it takes longer for loan approval.
Identify a lender best suited for your unique needs
SME financing in India is not entirely a regulated business. Scout around and look for alternatives before finalising on a lender. Look for an established name. Someone who has the experience in your industry and understands how the market works will be more sympathetic than someone who has no experience. Compare interest rates, read the fine print, understand the payment structure, etc. before committing yourself.
The small business loan that you take today will catapult your business into farther territory in the days to come. Make sure you consider all these points before applying for the loan.