Top Things to Look Before Applying for A Business Loans for Women
Finding a business loan can be challenging, but women often face even greater adversity while seeking funding as compared to other entrepreneurs.
Understanding the different types of business loans for women and how to apply for them can make it easier to access the funds necessary to operate and grow a business. The process of applying and getting approved for a business loan varies, and the following points come into play –
Know your business inside-out
When you submit a business loan application, lenders will enquire in detail about your business. This is because they need to understand your business plan, operations, supply chain, finances, customer acquisition, and staffing to analyze the risk associated with lending to your business.
If you are hesitant about your business plan or your numbers, how will that inspire confidence in a lender who is trying to decide on giving you their money? So, being confident is the key.
The first obvious checkpoint entails assessing the loan amount and the period in which they want to receive the amount. So it is best if you have a written business strategy while applying for a loan, which would reflect your vision of the business position.
You need to consider other factors to consider as well, like monthly revenue of the business, overhead costs, existing loans, etc. All in all, your loan amount should not go beyond your revenue.
Finding the true cost of loan
Check with multiple lenders as it helps you to assess the real cost of borrowing, and you can set a maximum limit for the time period for which you wish to borrow the loan. Additionally, your loan has more costs than the principal amount and interest, like the application fees, valuation fees, legal fees, and stamp duty charges.
Get your paperwork in order
As a standard practice for all businesses, whether women or men own them, all your business registrations and licenses need to be up-to-date and valid before submitting the business loan application.
Sometimes lenders also require a co-applicant to support a women-led business loan application. So, to speed up the loan process, you may also want to find a male co-applicant who is in good credit standing to make your application stronger, like your father, brother, or your husband.
Be clear and transparent on your business loan application
SME business loan applications get rejected because of simple errors or inaccurate information. Remember, most lenders will send someone to conduct a site visit to verify the information shared on your business loan application.
Know the information to be provided
It is advisable to know all the information that you have to provide in order to get your books in order and complete the formalities for swift processing of your loan application. Asking for the information to be provided is important because different lenders have different requirements pertaining to the process and documentation.
Type of loan required
There are multiple types of business loans. Do you want a secured loan or an unsecured loan? Secured loans may require you to grant sureties against it, but the rate of interest is lower than unsecured loans. You may consider assessing loan providers, i.e. banks or NBFCs, as they process loans quickly with minimum documentation requirements and generally, without any collateral. However, they charge a higher rate of interest than banks.
Personal and business credit histories play a vital role in successful loan applications. Good credit history also ensures that you will be charged a lower rate of interest by most lenders. Generally, credit scores or CIBIL scores of the applicant and the business should be at least 650 or above in order to be eligible for business loans and startup business loans.
In addition to interest, many lenders charge origination fees to cover the costs of processing and underwriting. Some lenders also charge prepayment penalties and draw fees, though this is less common among top lenders.
Before applying, prepare necessary documents, like tax returns for a minimum of two years; at least 12 months of personal and business bank statements, a business plan, and details about any current and past business loans. This can help streamline the application process and may shorten the overall time to receive funding.
In an environment of increased lender hesitancy, this eliminates the possibility of them rejecting your loan request because an important piece of paperwork has expired. Though it is a normal thing for businesses to take loans to conduct their day-to-day operations, doing so without due deliberation could be risky. You do not want to get stuck on repayments that you cannot afford.
If you are still skeptical about applying for a loan, you can also ask around in your business circle and online forums. Chances are that they have taken business loans before. Last but not the least, keep in mind that any fees collected prior to loan approval, like application fees, are a red flag.
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