What is a Small Business?
A small business is typically a privately owned enterprise with fewer employees and lower revenue than a larger corporation. These businesses can be in various sectors, including retail, services, or manufacturing, and are usually run by a single person or a small group. Small-scale businesses often serve local communities and rely on limited resources. They may require smaller capital investments and are eligible for various types of financial support, such as small business loans, to help them grow.
What is a Small Business Loan?
A business loan is a form of financing that can help a business resolve cash flow issues, capitalise on growth opportunities, and increase its overall turnover. Small business loans in India are particularly significant, as they allow small businesses to access funds that would otherwise be unavailable, enabling them to invest in equipment and inventory, hire more staff, and drive marketing and advertising efforts. They can also be used to finance expansions and renovations or repairs, as well as to cover the cost of keeping inventory, allowing businesses to remain competitive and make the most of market opportunities. Small business loans can provide a much-needed financial lifeline during difficult times, enabling businesses to weather the storm and stay in operation.
Why do Small Businesses Need Business Loans?
1. To Start the Business
Small businesses often need loans to cover initial expenses like equipment, inventory, and office space. Many owners do not have enough personal savings to start a business, so a small business loan becomes essential. It helps fund these necessary purchases without draining personal resources.
2. Managing Daily Expenses
Business loans for small business operations can cover daily expenses such as employee salaries, rent, and utilities. Sometimes, businesses face slow periods where sales drop, making it difficult to maintain cash flow. A loan helps businesses stay afloat during these tough times by ensuring enough working capital is available.
3. Expanding the Business
Small businesses may want to grow by opening new locations, upgrading equipment, or hiring more staff. Expansion costs can be high, and using all the business’s cash can leave it vulnerable. A small business loan provides the funding needed for growth while maintaining stability.
When owners decide to apply for a business loan, they go through a business loan application process that includes submitting financial documents to show how the loan will be used.
Grow your MSME with collateral-free business loans
Why Small Business Loans are a Necessity for MSME Growth
In addition to helping small businesses achieve immediate goals, small business loans in India can help micro, small, and medium enterprises (MSMEs) achieve their long-term goals, such as expanding into new markets, launching new products and services, and increasing their customer base. Another significant benefit of small business loans is that they can help businesses build their credit. Since the loans are typically repaid over a period of time, they can help establish a good credit history. This can be invaluable for businesses that need to obtain additional financing in the future and can increase their chances of approval. Banks and other lenders often require extensive paperwork and a long waiting period before approving a loan. Small business loans, however, are easier to obtain and can provide quick access to funds.
In many cases, MSMEs do not have the resources to acquire traditional financing and must rely on alternative sources of funding. Therefore, Non-Banking Financial Institutions (NBFCs) like Kinara Capital provide access to these funds, allowing small businesses to invest in their operations and increase their chances of success. However, it is critical to plan ahead of time for a loan and understand the documentation required by a lender when you apply for small business loans. Wondering how to get a small business loan? MSMEs can obtain a small business loan by applying to a business lender and providing the necessary details and documentation. NBFCs like Kinara Capital provide collateral-free Business Loans to MSMEs to help them grow and expand their businesses. Here are 8 simple steps that help in getting a small business loan.
8 Key Steps in Getting a Small Business Loan
Here are the 8 key steps you should take in order to get a small business loan:
1. Have a Business Plan
Before you apply for a small business loan, it’s very important to have a business plan in place to get a good understanding of how much funding you need and why. Without a well-thought-out strategy in place, it’s easy to lose track of your finances and end up squandering the loan amount without financing necessities and fuelling growth. Having a business plan reassures the lender that you will make proper use of the funds, instilling confidence in you as a borrower.
2. Check your Credit Score
Your credit score shows how creditworthy you are. Traditionally, it was considered one of the main ways to gauge how trustworthy you are with borrowing money, but this has since changed. Credit score ranges from 300 to 900, and lenders use it to decide if they should lend you money. A higher score means you’re more likely to get approved for loans and credit cards with better terms, like lower interest rates. Check your credit score regularly, and make sure you play your loan EMIs and dues to keep it healthy.
3. Update your Financial Statements
Lenders will look into your financial statements before deciding whether to give you a loan. So make sure that your statements are up to date and accurately reflect the financials of your business. Lenders have ways to verify these details, so if you are found to be misrepresenting them or there are mistakes, you are likely to be disqualified from getting a small business loan.
4. Choose Right Type of Business Loan
Various categories of working capital loans include machinery purchase loans, working capital loans, and bill discounting loans. Carefully consider your requirements, as well as the terms and conditions of the loan before you opt for one. To get a small business loan that suits your needs is the first step to properly utilising the funds for your business growth.
5. Research on Lenders
Choosing the right lender is a crucial part of the loan process. A variety of financial service providers offer small business loans, and it’s essential to do your due diligence before you choose one. Take into consideration factors like whether it is a properly regulated, registered entity, if the terms and conditions are fair and transparent, and what kind of reputation they have in the market. These steps will help you properly service your loans and build a long-term relationship with the lender.
6. Check Eligibility
Once you have selected your lender, check the eligibility criteria that they have for applying for a small business loan. Make sure that you adhere to these criteria before you apply, otherwise, your loan application will get rejected. Each lender can have differing eligibility criteria, so go through them carefully.
7. Gather Documents
You will require a set of documents for business loan. These include identity proof, business financials, certifications, etc. Find out which documents your lender requires and keep them handy when applying for your small business loan. This will speed up the process and up your chances of being approved.
8. Apply for Business Loan
The final step is to apply for a business loan. Once you have determined what kind of loan you need, identified the lender you want to go with, and gathered all the necessary documents, go ahead and put in your loan application. If everything is in place, you will have your business loan in no time.
These steps will guide you on how to get business loans successfully.
Tips to Improve the Chance of Small Business Loan Approval for an MSME Owner
We have a few tips to improve the chances of small business loan approval for an MSME owner:
- Maintain a Good Credit History: A strong credit history shows lenders that you are responsible with money, which can help you get a business loan instant approval.
- Show Financial Stability: A steady income and a growing customer base make you look reliable to lenders.
- Prepare Required Documents: Prepare all the necessary documents for a business loan, such as financial statements and tax returns, before you apply.
- Demonstrate Business Vintage: Showing your business has grown consistently over the years can boost your chances of business loan approval.
Types of Small Business Loans at Kinara Capital
Kinara Capital, an RBI-registered NBFC, offers a range of collateral-free loans catered to the needs of MSMEs, which are disbursed in just 24 hours, with minimal documentation. Here are the types of small business loans Kinara offers:
1. Working Capital Loan:
These loans help businesses maintain cash flow for day-to-day operations. MSMEs can use these funds to purchase raw materials and manage seasonal sales effectively. A quick eligibility check can be done on Kinara’s website or the myKinara app.
2. Machinery Loan:
This loan supports MSMEs in financing equipment or machinery. It can be used to upgrade existing machinery or purchase new ones, which helps improve product quality and customer satisfaction. The flexible repayment terms enable better financial management.
3. HerVikas Loan:
Designed to empower women entrepreneurs, this program offers a 1% interest discount without requiring additional documentation. It also offers a 60-day repayment holiday, 50% reduction in processing fees and a lowered business vintage of 1-month registration for women business owners from manufacturing and trading MSMEs. Women can access loans from ₹1 lakh to ₹30 lakhs for business expansion, promoting gender equality in finance and enhancing economic participation.
Step-by-Step Online Application Process
Now let us come to the most important part: how to get a small business loan. At Kinara Capital, we have a fully online application process. All you have to do to get a loan is follow these steps:
- Quick Eligibility Check: In less than a minute, you can find out if your business qualifies for the loan! You can access the eligibility check in seven different languages available on our website for a seamless experience.
- Screening: The business and the entrepreneur are screened by validating the KYC and registration details.
- Document Upload: You need to submit your KYC, applicant, co-applicant, business KYC (ID and address proof), applicant PAN Card, business registration document, last 12 months’ bank statements, GST registration (if available), and business vintage proof.
- Loan Approval: Once you complete the process, your loan application will be reviewed, and if everything is in place, the Kinara officers will approve your loan.
- Disbursement: Once your loan is approved, you will receive the loan amount directly in your account within 24 hours
Conclusion
Small business loans are an important source of financing for MSMEs to grow their businesses. They offer a variety of loan products, including term loans, working capital loans, and machinery loans, that can help MSMEs access the necessary funds to expand their operations. Small business loans from NBFCs also offer several benefits, such as minimal documentation, faster processing of applications and disbursement, etc. Small Business Loans from NBFCs are particularly beneficial for MSMEs as they provide access to capital at a much lower cost than traditional banking loans. This is due to the fact that NBFCs do not require as much paperwork and are more flexible in their lending criteria, allowing them to approve loans more quickly.
Additionally, NBFCs offer a wide range of loan products that cater to the specific needs of small businesses, allowing them to access the capital they need to grow their operations. Furthermore, loans from NBFCs are often tailored to the specific needs of MSMEs and can be used to purchase equipment, hire new staff, purchase inventory, and expand operations. This flexibility makes it easier for MSMEs to access the capital they need to grow their businesses. NBFCs offer competitive interest rates, flexible repayment terms, and quick disbursement of funds, making them an attractive option for MSMEs. NBFCs like Kinara Capital are the answer to the capital need faced by MSMEs in India as they make getting small business loans easy and smooth.
FAQs
1. How can I get a loan for a small business?
If you are a small business owner, you can get a loan by registering your business and then approaching a lender that offers loans for small businesses and applying for the right category of loan you need.
2. How do I qualify for a small business loan?
You can qualify for a small business loan if you are the owner of an MSME. You can improve your chances of getting loan approval by choosing the right lender, having a solid business plan and good credit history, and meeting lender’s eligibility criteria.
3. How much can I borrow with a small business loan?
The amount you can borrow under a small business loan varies based on factors like the lender’s policies, the financial health of your business, and the purpose of the loan.
4. Can I get a small business loan with bad credit?
New-age lenders like fintech NBFCs now consider a number of factors other than credit score to gauge creditworthiness, so even if your credit score is not great, you have a chance to get a small business loan. However, it could make it difficult and the terms might be less favourable.
5. Can I Get a Business Loan Without Collateral?
Yes, you can get a business loan without collateral. These are known as unsecured loans. Many lenders, including banks and online platforms, offer such loans, although they may have higher interest rates. Options include SBA microloans, which can be obtained without collateral for amounts up to Rs 25,000, and personal loans or credit cards that don’t require business assets as collateral. However, even without collateral, lenders may ask for a personal guarantee, meaning you agree to repay the loan even if your business can’t.
6. How to Apply for a Business Loan?
To apply for a business loan, follow these steps:
- Complete the Application: Fill out the loan application form with all required details and submit it with the necessary documents.
- Prepare a Business Plan: Show why you need the loan and how you will use it.
- Check Your Credit Score: A good credit score improves your chances of getting approved.
- Gather Financial Statements: Have your business’s financial records ready to show lenders your financial health.
- Research Lenders: Look for lenders who offer loans that suit your needs, like Kinara Capital or other online lenders.
