Small and Medium Enterprises (SMEs) are an essential factor in the development of an economy. Such enterprises play a crucial role in keeping the supply chain together in times of economic slumps and recessions. Recognizing the importance of such units, the government in association banks and NBFCs developed a special product named SME loans. SMEs thus have access to funds in times of crisis, provided a few key factors for approval are at par with the requirements of lending institutions. Take a look at these key factors vital for easy business loan approval on favorable terms.
Business Plan
If you don’t plan your SME Loan, you’re making a mistake and putting your professional reputation at stake while also straining your relationship with your bankers. Put together your Income documents, Income Tax Returns papers, Balance Sheet, and Profit and Loss statements, and check your Business Credit Health Report before approaching the bank. Strategize a plan with practical financial projections based on sales and profitability for fast business loan approval, and take professional advice if required.
Cash Flow Management
Start getting into the act of managing cash flows with a view to approving your SME loan quickly. Liquidity positions of businesses are important to lenders since this factor has to do with loan repayment capacities. Check your cash flows, and maintain fiscal prudence to keep your Debt Service Coverage Ratio (DSCR) within your banker’s prescribed limits. Enforce payment discipline to improve receivable turnover ratios. Reduce overheads, pay invoices in the business name, and monitor cash flows for slippages to ensure strong cash flows since banks prefer strong flows for low-rate interest loans and government interest-free loans.
Loan Amount and Reason for Loan
Reasons for a business loan are many and may include equipment purchase, expansion funding, real estate investment, acquisitions, etc. Identify the purpose for taking an SME loan; this will also help you arrive at the exact loan amount required. Surplus finances are a result of unplanned SME loans. A lower amount than required could lead to a working capital crunch, while a higher amount could lead to unwanted debt burden and wastage. Query your business from all angles to enhance changes for SME loan approval.
Most finance advisors mention credit score as an important factor in popular ‘How to get a Business Loan’ articles. Likewise, most Banks and NBFCs mention Credit Scores in their SME prospectuses as an eligibility criterion. If you’re not at par with a 750+ credit score, start taking steps to improve your score; your business credit score would have improved by the time you approach your bank. If you don’t have a plan; don’t go to the lender, since multiple inquiries reflect on your credit score. Check every entry in your business credit report that needs correction and improvement.
Consider the above-mentioned smart ways and tips to get approved for an SME Loan, visit ruloans, choose the best offer from a selection of Ruloans Business Partner offerings, and call 1800 266 7576 for the best advice on how to get an SME Loan.
