The past few years have been difficult on businesses since the pandemic hit like a wave throughout the globe. Slowly things are starting to recede to normality and business are getting their original grove back. Businesses will now have to focus on securing new customer base and also establish healthy cash flow to ensure that business turnover rises again as it was previously. If you are looking for ways to rebuild your business then one way to do it would be acquiring a business loan. This would provide you with the necessary capital you need to invest in stock, or hire new staff or maintain and buy new equipment. Having said this it is not easy to acquire a business loan, the process can seem daunting to someone who is new to it. A business loan comes with its own set of rules and regulations and it must be specifically used for a business purpose only unlike a personal loan. Business loans are provided by banks and non-banking financial companies (NBFCs). These financial institutions may have different requirements for a business loan and different processes for approving business loans.

Many people apply for business loans only to be rejected due to some reasons or another.

Here are 5 common mistakes to you should avoid when applying for a business loan in India:

Research your lenders

Even while lending is generally carefully regulated, there are still dishonest lenders that turn to exploitative tactics to increase their profits. Taking out a loan is a serious choice that will have long-lasting effects on your financial situation. The best method to protect yourself and your money is to do your homework on potential lenders before approaching them for a loan.

The process of applying for a loan is getting quicker and simpler as a result of technological improvements like digital payments and data-driven processes that have sped up the application and decision-making processes.

However, this also implies that shady lenders are more likely to slip through the cracks. As rapid lending apps proliferated in India in recent years, many consumers were affected by unregulated lenders’ forced recovery tactics and misled about interest rates. A good lender will make the entire borrowing process transparent, take the time to explain it to you, disclose all parts of the loan sanctioning fees up front, and give valid repayment choices.

Register your business officially

It is important to register your business but most of the times micro and small business enterprise fail to register their business. Registering your business officially can give you a range of advantages like access to credit from banks, government schemes, and also private lending options. If you have your registration finished, including documents like a company license, business PAN, GST, etc., you can access several other benefits in terms of taxation, logistics, and credit facilities. It also serves to create your corporate identity and business type. Most lenders demand that you produce proof of your company’s registration when you submit your loan application. Even if your business is still profitable and has a good turnover, improper business registration could result in an outright rejection at the eligibility verification stage.

Have a definite business plan

One of the most important document that you need for your credit approval is your business plan, it is something that your lender will take into consideration. A lender needs to be certain that your business strategy is sound enough to produce returns before agreeing to offer you a loan for your venture.

Lenders typically examine how much credit you actually require, how you intend to use it, and your capacity to repay the loan. A detailed business plan that outlines every aspect of your operation can make a compelling argument on your behalf. Include an excel file with all of your company’s important financial information, along with a strategy for how you’ll make money and pay back the loan by the deadline.

Deliver a faultless business plan with accurate financial information. Your organization’s history and nature should be thoroughly described in your business plan. Along with the execution plan, you must also include a sound and convincing justification for needing the business loan. The financial section of a business plan is the most crucial component that lenders are interested in.

Check your loan Eligibility

Many businesses move on with business loan applications without fully comprehending the conditions of the specific loan. The lender’s or Bank’s website will list the requirements of documents for business loan eligibility.

You must be well aware of the procedures necessary to get your business loan in a methodical manner. Depending on the type of loan, the application process for business loans may take a while. If you don’t include all the necessary required documents with your business loan application, it may be rejected or delayed.

Choose the right kind of loan for you

There are a varied range of options available in the market for MSMEs. They could be providing loans for start-ups, loan for properties, working capital loans, payroll loans etc. It is important you choose the right kind of loan for your business. It may happen that a business is struggling to pay salary to its employees due to cash flow issues and they have applied for a working capital loan. Payroll funding is the new type of lending option available in the market that helps business run payrolls on time.

These were few of the things one should keep in mind to avoid making mistakes when applying for a business loan, along with that you should also remember to read the fine print on the agreement, do not make multiple loan enquires at once, and don’t misrepresent your financial details to the lender, keep your CIBIL Score in check.