With approximately 25 lakh registered MSME units, this sector forms a crucial part of Indian economy that contributes around 48% to exports and 29% to the country’s GDP. However, despite its significance, one of the biggest challenges faced by this sector has been the availability of formal credit at affordable interest rates.
It is mainly because financial institutions consider it to be a risky investment owing to lack of collateral and extended credit history. Consequently, to encourage growth and expansion in this sector, the Government of India has introduced several measures such as offering collateral-free loans up to Rs.3 crore for MSMEs which can be availed through banking and non-banking financial institutions against minimum business loan documents.
However, before applying, borrowers should gain a comprehensive idea regarding the contents of a loan application form. It will enable them to avoid errors for easy sanction of a loan within a short time. Given below are some of the essential details that should be provided with the loan application –
- Loan amount –
It is one of the first and most crucial pieces of information that an individual must include in a loan application. However, before entering the loan amount, one should compute the actual funding requirement and the business’s capacity to repay. It is because, if one applied for a loan which is more than the business’s repayment capacity, then he or she will need to pay a higher EMI, which may lead to unnecessary financial strain.
On the other hand, availing a lower amount may prevent them from successfully meeting their financial requirements. Consequently, borrowers should know how to calculate EMIs using business loan EMI calculator and use it to estimate installments before applying.
- Loan tenure –
Besides the business loan amount, borrowers also need to include tenure or repayment period in the application. One should also keep in mind that an extended term means high interest payment but lower EMIs. On the other hand, a shorter repayment period means higher monthly instalment amount but a low-interest amount.
- Purpose of the loan
In the loan application, individuals need to specify the reason behind applying for such credit. For instance, an entrepreneur may require a business loan to improve working capital of the venture. Whereas, a business that has been operating for a few years may need additional funds to upgrade or purchase machinery and equipment.
- Financial history –
Applicants also need to state accurate information regarding their current financial standing. To this end, they need to mention their financial details such as repayment history, existing loans, yearly income and expenses, and the likes. As a proof, prospective borrowers also need to submit essential business loan documents such as profit and loss statement and balance sheet audited by a C.A; Income Tax Returns filed for previous years, and the likes.
- Business vintage –
Borrowers also need to provide business loan documents regarding the age of their business. Since the age of the business impacts its credit history too, financial institutions use this information to ascertain the risk involved in lending.
Apart from that, applicants also need to submit certain business loan documents as proof of the venture’s existence. It includes business registration papers, certificate of commencement, Article and Memorandum of Association, partnership agreement, PAN of business or any other document issued in the concern’s name. Financial institutions like Bajaj Finserv keep their business loan document requirements to minimum for easy fund accessibility.
The lender also extends pre-approved offers to its prospective applicants, which are available on an array of financial products such as business loans, credit cards, personal loans, etc. These offers aid in removing hassles and speeding up the overall credit application procedure. One can check the pre-approved offer on loans by providing only a few information like their name and contact information.
Apart from these, borrowers should also go through the eligibility parameters specified by a lending institution before applying for business finance. Some of the basic parameters that every applicant must meet to easily get a collateral-free business loan include a credit score of 750 and above, minimum business vintage of 3 years, age within 25 to 55 years, etc.