Want an SME loan? Get your application, paperwork right

You’re looking to set up your small business and need that push to get your plans going. Or you could be looking to expand your existing business and need the funding for acquiring new assets. A small and medium enterprise (SME) can have financial needs that require some amount of tailoring. An SME loan is a preferred funding option for small and medium entrepreneurs who are looking to fuel their business aspirations.

Applying for an SME loan can be a challenging task if one does not know how to go about it, especially with the paperwork involved. Here we present a few tips on preparing your loan application and advice on getting the paperwork right.

Do your research – Your choice of SME loan provider should be based on some good research into lending institutions and banks. Check if you already have good business relations with a bank as this can help with getting your loan approved. Read up online reviews on potential lenders. Generally, a bank with a large presence or network is considered ideal to borrow from. Check bank websites to get all the information and insight you need into the terms and conditions of different SME loans and compare.

Choice matters – Review the types of businesses the bank deals in before choosing. What is the scope of tailoring the bank can provide to suit your unique business needs? What are the terms of repayment? Are there tax benefits? Is there an option of higher loan tenure to suit your requirements?

Get your documents right – Banks and financial institutions look for a well-made business plan. To get internal approvals and sanctions they will try to ensure your application meets all the required criteria for their processes. It is very important that entrepreneurs examine the SME loan application form thoroughly. Clarifications and advice can be sought from the bank manager or customer care advisor.  It is also a good idea to first download a sample bank loan application form to gain a better understanding. Make a note of the list of documents to be attached to the loan form. Once you’ve made a checklist of the important documents required, start preparing and putting them together. Keep your income documents, PAN card details and updated bank statements ready among other important documents. Here’s a useful checklist of some of the important documents you need to have ready:

• Loan application form

• Passport copy/ PAN/ Ration Card

• Office address proof

• Applicants’ passport size photographs

• Certified copies of partnership deed / Memorandum of Association / Articles of Association

• Repayment Track Record

• Audited financials of 2 years

• IT Returns of directors/partners of 2 years

• Proforma invoice to the equipment to be financed

• 6 months’ bank statement of primary account

• Professional qualification certificates (necessary when applicable)

Make a good application – Start preparing the application as early as possible to get all the right information and papers. This can keep the application free of errors and increase the chances of an approval. It is also a good idea to run your application through a customer care officer before filing.

Be interview-ready – Be prepared to confidently present your business plan at the loan interview. You can have mock loan interviews to help you feel ready for the real one. Be absolutely clear while explaining how the loan money is going to be utilised in your business. Respect the loan officer’s time and speak to the point. Provide all the relevant information about yourself, your line of business and experience. Speak clearly about the loan amount required for investing. Be ready with whatever documents or materials you need to support your requirements – it could be your annual report, financial statements or a business brochure. Give as much background information on whom you would be purchasing goods or assets from and who your prospective customers would be. Discuss these matters with the bank before signing any agreements with other parties or make any payment arrangements. 

Understand borrowing costs - Try to avoid borrowing more than you need. Also check if you are borrowing for too long at a high interest rate. Banks usually push loan products that are the most lucrative to them or those with least risk. Check for the costs, fees, charges apart from the interest being paid. Fully understand the impact of these on your loan transaction. Would there be legal costs for drafting a loan contract? Seek all the clarification you need before deciding to commit.

All in all, a good SME loan application makes a solid case for your business plan and increases the chance of funding your dream to reality.