Strategic Approaches to MSME Loan Approval

Understanding the Loan Approval Process

The most effective approach for a firm to grow and survive these days is with a business loan. It is rather simple for any business entity, whether professional or not (self-employed), to apply for business credit. In contrast to conventional financing, modern lenders have increased the accessibility of business credit, particularly for small businesses. 

These days, NBFCs provide helpful resources to help applicants more accurately estimate the costs, such as a business loan EMI calculator. The majority of the application process now takes place online, at the borrower's convenience. Particularly since COVID-19, a lot of lenders have made technological investments to change their business practices and increase efficiency. These investments range from online document verification tools to interactive consumer apps. 

Most NBFCs broadly follow the below-mentioned process for SME loans. There could be a few variations though depending on the unique system of an NBFC.

• Application Submission: Submit the required documents and application form.
• Eligibility Check: The lender verifies eligibility criteria.
• Document Verification: Lender checks submitted documents.
• Credit Assessment: Evaluation of creditworthiness and business viability.
• Loan Sanction: Approval and terms finalization.
• Disbursement: Funds released to the borrower's account.

Now let us go through the two most important aspects of any MSME business loan. Preparing a solid loan application and strengthening creditworthiness.

Preparing a Solid Loan Application

Do you know why there are occasional delays in business finance sanctioning? Mostly as a result of inadequate documentation and inadequate preparation. On the other hand, if you prepare the necessary paperwork ahead of time, you may provide it on schedule and expedite the process organically.

You should always check with the lending institution to make sure you are well-prepared, as documentation usually differs for different lenders and loan kinds. In any event, a lender could request that you provide records like:

• Accurately completed application
• A thorough business plan that clearly outlines the goals and mission of your company, previous performance reviews, and your intended use of the loan funds.
• Bank statements for the company for the last six months
• KYC records (ownership papers, PAN card) for the business
• KYC records for the company owner (PAN number, CIBIL score)
• Last two years' income tax returns
• Balance statement audited over the preceding two years

Strengthening Creditworthiness

In order to obtain formal lending and meet your business objectives, having a great credit history is essential, regardless of whether you are a startup business owner or an established small- or medium-sized company aiming to grow.

To improve the overall creditworthiness of your business, follow the below-mentioned tips.

• Keep Financial Records: Maintain accurate and up-to-date financial statements when you apply for a business loan.
• Improve Credit Score: Pay bills on time and lower outstanding debts.
• Solid Business Plan: Have a clear and practical business strategy.
• Offer Collateral: Provide valuable assets to secure the loan.
• Ensure Cash Flow: Show consistent and stable revenue streams.
• Experienced Management: Have a skilled and knowledgeable management team.
• Build Lender Relationships: Maintain good relationships with banks and lenders.
• Reduce Debts: Minimize current liabilities and debts.

Strategies for Effective Cash Flow Management

A company's overall success depends on factors other than profitability. A responsible cash flow management policy is the foundation of a financially sound company. Even greater profits won't help your business if it is an SME or you're trying to take advantage of fresh prospects and your cash is being hoarded by receivables or poorly managed inventories. Follow the following strategies for effective cash flow:

• Forecast Finances: Predict your cash needs and inflows regularly.
• Prompt Invoicing: Send invoices immediately and follow up on late ones.
• Trim the Fat: Cut unnecessary expenses to keep costs low.
• Emergency Fund: Save a cash reserve for unexpected surprises.
• Negotiate Wisely: Get better payment terms from suppliers.
• Smart Inventory: Avoid overstocking; manage inventory effectively.
• Tech Savvy: Use accounting software to track cash flow.
• Short-term Solutions: Use short-term loans to cover temporary gaps.
• Income Streams: Diversify your revenue sources.
• Regular Checkups: Keep an eye on cash flow and adjust as needed.

Conclusion

Business loans provide a very efficient means for businesses to generate the required capital and scale up quickly, whether they are expanding their operations or managing cash flow. A business can benefit from a variety of other financial advantages in addition to profitable financial leverage. Now that you are aware of the process for obtaining a business loan, contact a reliable NBFC in order to obtain one. NBFCs provide business loans with competitive rates. Apply for a lucrative loan that has been specially designed to meet your company's needs, from expanding to buying inventory.