A country’s economy depends largely on the different types of businesses carried on, and it does not involve only large business organizations and industries. Even the small businesses contribute a lot to a country’s economy. Therefore, if you think in the lines of starting a small business the government will welcome your move and even help you with its funding as and when required. However, when you take up a loan, you must know the requirements along with the pros and cons.

It is also important for you to be well prepared with the necessary documents as there are lots of it required along with a long paperwork and tedious process to get your loan approved. With these loans made available to you by different formal and informal money lenders, you will not face the challenges that may arise while running a start-up as there will be no shortage of funds. You will not struggle to survive which is a common factor for most startups to pull down the shutters prematurely.

Whether it is for the working capital or the infrastructure, equipment or a vehicle for business purpose, for the day to day expenses or for paying the salaries, there is a loan for all your needs. Thanks to the changing money lending scenario and money market, the survival of small businesses are now guaranteed by the banks and NBFCs.

Requirements for a small business loan

Since it is for business purpose, the type of loan that comes to mind is the small business loan. Therefore, start your research with this. There are a few requirements and a few words of cautions for taking on such a loan. These are enumerated at random as follows:

• Justify your loan and do not take on more than you can pay back
• Consider the nature and volume of your business and not the ease of availability
• Consider your eligibility criteria as a borrower and the pre-requisites
• You must fall within the pre-determined age to avail these loans and
• You may need to pledge collateral in the form of real estate to avail such a loan

The documents required

Your loan application should be complete in all respects with the following documents attached along with it to prevent cancellation of your loan. The list includes:

• A precise and proper business plan with high prospects including the product, team, market and financials
• Financial details about your business income must be furnished, and it must be error-free and include all bank loan accounts, investment accounts, credit card accounts, past, and current loans and debts incurred
• You will also have to include enough supporting documents such as addresses, complete contact details, tax ID numbers, and others

• Full details of all accounts receivable if any must be included with information of sales and payment history of each transaction

• Similar account payable details if any must be provided along with your loan application
• All financial statements duly audited and reviewed must be attached with the application to help the lender to make all financial checks of your company
• You may also need to add your personal financial details as well along with the business details, and it must include identity proof
• Insurance is a mandatory factor for any business, and such details should not be skipped either to safeguard the loan in case of death or illness and
• Copies of past returns must feature in your application as well to check the legitimacy of your company.

With all these documents furnished along with your loan application, you can be sure of an approval. If you are lucky, you may even get a business loan that is twelve times your monthly net income. However, do not expect the same amount from all banks or any other money lender. That is why you must visit libertylending or any other bank websites to know about their lending policy that may vary from one to another.

Other loan options

There are also a few other types of business loans that you may avail from other alternative sources as well. There are several money lenders who help startups and new businesses by providing different types of loans in easy terms. A few loans are even provided as a cash advance to the business owners in case they need to purchase any costly equipment to start their business.

It is therefore required that you look out for all other available options and not have any prejudice for the small business loans. For this, you will have to research well. Few of these loans come with collateral, but there are many others that will not need any security, collateral or a guarantee.

Line of credit

Line of Credit is one such type of option that you can avail. This comes in many forms, and you may choose the most suitable one for your business purpose. However, most of the time people misunderstand Line of Credit which is very surprising as there is nothing complex in it.

The working principle of Line of Credit can be best understood if you compare it with your credit card. A credit card will have a specific limit up to which you can make a purchase.

The specific amount used from your credit limit becomes your loan amount and interest is charged for this particular amount only, and the remaining amount is left untouched. If you do not use the specific card anymore, the loan amount does not increase

You may even use the credit card even if you have not cleared the previous loan and therefore incur more debt and interest accrued. Now you will have to pay more as your monthly bills to clear off your debt.  

It is the same for Line of Credit. Just as the credit card limit is provided based on your usage and financial status, the amount that you may receive on your line of credit will depend on your business and its plan. It is, for this reason, you must have a very good business plan ready.

Author Bio

Marvin Power is a freelance writer who has been writing for various blogs. He has previously covered an extensive range of topics in her posts, including Business, Startup, Technology, Finance, Cryptocurrency and start-ups.

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