10 Financial Habits That Make Business Loan Approval Easy

A business loan becomes intrinsic to any entrepreneur when looking to set up or expand their businesses. Obtaining a business loan helps meet immediate financial needs and aids in business growth and expansion. However, a business loan application gets approved or rejected based on certain factors. And, you can only meet these criteria if you follow the 10 sound financial habits that we have listed in this article. 

But, before digging deep into these financial habits, let’s have a quick look at what a business loan is.

What is a Business Loan?

A business loan can be termed as financial support offered by lenders to fuel business growth and expansion along with establishing new businesses. Lending institutions such as banks and NBFCs provide secured and unsecured business loans. This loan category is available for MSMEs, enterprises, existing business owners, and individuals.

Lenders offer certain types of business loans to cope with the various needs of the borrower. These include:

• Working capital loan
• Term loan
• Overdraft loans
• Loans that fall under government schemes
• Business loans for women
• Invoice factoring
• LOC – Letter of Credit

You can go for any of the aforementioned business loan types based on your financial needs. 

10 Financial Habits to Get a Business Loan Successfully

Obtaining a business loan can be hassle-free if all considered factors are on track. However, these factors cannot be met in a day or two and take cumulative efforts to build them up. The good news is that there are 10 financial habits that can get your business loan approved upon practising.   Sticking to these financial habits for the long run will increase your creditworthiness, and no lending bank will be able to reject your business loan application. Let’s see what these are. 

Persistency in Business Cash Flow

Effective management of cash flow caters to operating a business without any interruption. Cash flow is a vital factor for increased business growth. You have to make sure of timely transactions wherein you make and receive business payments without delays. Late payments adversely affect the working capital. Poor cash flow results in decreased chances of loan approval.  

To ensure that your business loan application never gets rejected in uncertain conditions, deeply monitor the cash flow. Additionally, check your client’s credit score before getting bound in an agreement. It will save you from delayed payments at later stages. Receiving on-time payments will help clear outstanding debts and result in improved cash flow.

Build and Manage Business/Personal Credit Rating

A credit score is an inescapable loan approval factor. Lending banks and finance providers consider credit scores for evaluating a loan application. However, building a good credit score takes more time than a day or even a month.

Paying EMIs and other debts on time can help you improve your personal and business credit score. Don’t forget that you have to manage both the credit scores equally. Banks look into individual credit scores together with the business credit score, so having any one of them on point is not going to help.

Business and personal credit ratings significantly impact the overall business growth. The foremost mechanism to improve credit rating is on-time payments. Never delay making any payments. Consistency is key, through which you can increase your creditworthiness to avoid loan rejection or higher interest rates. Always set aside the payment amount or create a separate business account to avoid defaults or late payments.

Separate Your Personal and Business Expenses

Being a business owner, you should make sure that you have separate accounts for professional and business expenses. Don’t use business funds to cope with personal needs, even if you have thought to deposit them back into the business funds. Possibilities are you might fail to do so, creating a path for uncertain circumstances.

Additionally, using business funds for personal needs will not generate any profit and will act as a hurdle in business growth. Counting on business funds for individual needs adds to the business expenditure.

On the flip side, if you avail of a business loan while keeping your expenses separate, you will not have to evaluate how much funds you have and how much will be required. Different business accounts will help you to determine the exact amount outright.  

Keep Your Documents Updated and Beforehand Ready

Getting a business loan becomes easy if you have already prepared your loan documents. That way, whenever you plan to obtain a business loan, the processing will take minimal time. However, the required set of documents varies from one lender to another. So, before applying, always be mindful of the documents your bank is asking for a business loan approval.

If you don’t have any of the documents, arrange or apply for them immediately. Make sure you have all the requisite business licences for running your business. In short, get your paperwork done in advance. 

Here’s a list of standard documents that all lending institutions ask for:

• Documents associated with identity proof such as the Aadhaar card and PAN card together with other Govt. ID proof.
• Documents related to address proof, including Aadhaar card, utility bills, voter card, and passport.
• Financial documents such as bank statements, ITR, audited balance sheet, and business continuity proof.
• Ownership proof.

Loan documents vary from one lender to another; thus, it is equally important to know about available lenders, their terms and conditions, and eligibility criteria.

Be Familiar With Lending Banks and Finance Institutions

The finance market is full of finance providers such as banks, NBFCs, private lenders, and other financial institutions. However, the catch is, you need to get familiar with the pros and cons of each of them. Know about the available finance products before applying for a business loan. Get acquainted with the terms and conditions, know if they have strict terms, their eligibility criteria, offered interest rate, services, and customer satisfaction.

Private lenders have lenient terms and conditions. In addition, you can get a higher loan amount. However, the loan terms depend on the recent RBI guidelines and repo rate. So, before applying for a business loan, connect with the chosen lender and know how you can get a business loan through them. Additionally, don’t forget about the repayment terms. Make timely payments so that the debts don’t pile up. 

Don’t Pile Your Credit Card Debt

Business owners count on credit cards to make instant payments for their business supplies. However, it can prove to be a huge mistake if done in the long run. If you repay the amount quickly, it will not affect your credit score. But if you keep these debts piled for the long term, it may result in decreasing your creditworthiness.

So, avoid piling up credit card debts to cope with instant business requirements. Make sure that you use a credit card only for critical or emergency situations. Keep an eye on loan repayments, their status and stay updated on what you have borrowed.

Get Regular Updates on Loan Repayment Status

If you have availed of a business loan, always keep an eye on loan repayment. Be mindful of the payable amount, how much you have already paid, the residual amount, timely EMI deductions, your account status, and more. 

All these pointers help in disciplined loan repayments. Moreover, your credit score and overall creditworthiness depend upon the loan repayment. So, make sure you don’t skip any instalments.

All these things add to business stability in the long run. You can also determine the payable instalments through a business loan EMI calculator. With all such pointers on track, you increase your chances of loan approval.

Invest in Building a Strong Business Structure

How much will your business grow? Will it be able to meet the expected goals? The answer to these questions thoroughly orients around the business structure. When you get in touch with a lender to avail of a business loan, the very first thing that the lender asks is about your business structure and future business plan.

You have to make sure that you have a strong business plan because the approval of your loan application depends upon it. Your business plan should depict how your business is going to make profits, projections of annual revenue, and how you will repay the borrowed amount.

Moreover, it must have clear information about the day-to-day business expenses. You can consider it as a key to unlock your business loan. It is the mechanism of convincing the lender that your business has the credibility to repay the loan.

Spend the Loan Amount and Earnings Sensibly

Be clear about the three determinants of what, when and how much to pay or use. If you have clarity about these three, you will invest the borrowed amount efficiently. Spending the borrowed amount impulsively won’t help you generate substantial business profits. So, make sure you spend the borrowed amount wisely for the intended purpose.

Additionally, if you don’t want to keep on borrowing more, use your monthly business earnings in the best possible way. Repay the borrowed amount and at the same time use the earnings to grow more and generate profits.

Employ a CA or record keeper and always stay in touch with him. Review the maintained record every month and ask for suggestions. Analyse your improvement since last year. This comparative observation will help you perform better. Look for changing trends, specifically in terms of expenses that didn’t offer any profit. When you keep track of day-to-day activities, you can spend funds with more efficacy.

Let the technology make your task easy. Link your business account with advanced accounting software. Review the transactions from anywhere and know about each penny that you have spent by now. We will recommend you to go through every minute detail at least once a month to eliminate unnecessary expenses.

Don’t Take Immediate Decisions

Sticking to one suitable finance ritual won’t be enough to make your business a successful one. Explore more and exercise multiple financial practises regularly. Read how you can manage your finances better, go through success stories and understand what more you can do. Perform regular checks on cash flows and ongoing activities. Before obtaining a loan, determine how you will repay the borrowed amount and repayment tenure. Avoid taking impulsive decisions or being too reckless with your finances.

Go through the pros and cons of a business loan, do research, and then make your final move. Consider every factor from purpose to repayment and then move forward with your loan application.

In a Nutshell

The above-discussed information makes it clear that if you stick to good financial habits now, you will end up increasing your credibility in the long run. A business loan might be the foremost tool to grow a business, but it won’t be served on a plate. You will have to prepare it yourself. Count on everything from business plans, documents, eligibility to cash flow, and expenses for a swift business loan approval.

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