Seven steps to getting a bank loan | SupportBiz

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Seven steps to getting a bank loan

 
Borrowing from banks is the major source of funds and liquidity for most SMEs across India. What do banks look at when you approach them for funds? SupportBiz tells you exactly that in this article.

Purpose of the loan

A business should be prepared to answer why they need to raise funds. Banks will need to be convinced that the company’s cash management is excellent and that the business has not locked up money in the company because of poor credit management and cash flow.

Size of business

Size matters as it instills confidence in the company and gives credibility to the business.

Financial Statements

Banks ask for at least three years of audited financial statements and analyze your liquidity, profitability, gearing and operational performance. Support your documents with statements from a good accountant who is up to date with your business and has knowledge of banking norms and requirements.

Sources of repayment

Inform the banker about the source of income for the repayment. This will help him evaluate the ability of the SME to repay the loan.

Collateral

Carry all documents pertaining to any asset, which the business may have to charge or pledge as security against the loan, to the bank.

Conduct of current account

This will indicate the financial worth of the borrower and also reflect the character of the borrower. It will also help in indicating to some degree past credit worthiness.

Third-party opinion

Businesses get instant credibility with they are rated by a reputed credit rating agency. Banks find it easier to lend to SMEs with a good rating and the lender also reduces interest rates in some cases. Many Indian banks provide interest rate concessions starting from 0.25-1.25 percent for rated SMEs.

While enthusiasm and passion go a long way in succeeding in a business it is deep knowledge of facts and figures which will help it grow.