For every small business owner getting a loan can be very helpful in expanding their current business. Even if there are many MSME owners looking forward to financial support from banks and other lending institutions, there are many things that make it difficult for them to get the necessary funding when needed. In this article we will provide some good takeaways for Indian MSME owners to increase their chances to get funding. These are very practical tips that can help to immediately turn things around for your small business. A small business loan is usually what acts a game changer in the case of SMEs across India as unlike corporate companies they don’t usually need funding in crores and they are the type of businesses who benefit when the loan is provided without seeking collateral.

1. Build a Strong Credit History

The very basic requirement for a bank or any sort of lender when a small business/company approaches for a business loan is a strong history of credit. If your business falls short in credit score, having your cash flow statement updated, having the GST filings done and ITR filings done etc can help proving your creditworthiness.

2. Create a Comprehensive Business Plan

If an SME/MSME approaches the lender with their well put together plan for business expansion with notes of strategy and expected outcome etc calculated the lender is likely to have more confidence in the borrower and will increase the chance for small business loans to be approved and disbursed. Winning the confidence of the lender is the most important thing for a business needing finance.

3. Maintain Accurate Financial Records

This is one of the most obvious things to be taken care of by any MSME owner, i.e to keep your financial records/documents maintained. As lenders would want to verify and inspect these records to ensure the business is functioning properly and there is potential for further growth.

4. Demonstrate Collateral or Personal Guarantees

If you happen to have collateral in the form of assets, letting the financial institution knowing about such assets in advance will also increase chances for a loan as they will know that you will have alternative ways to pay off the borrowed money to the lender. Giving personal guarantees could also be a strategy to consider however we don’t recommend either of these 2 options as it puts you in a more difficult situation.

5. Network with Lenders and Financial Institutions

Building relationships with lenders and financial institutions can be beneficial in the loan application process. Attend industry events, connect with other business owners, and research different lenders to find those that specialize in SME loan.

6. Consider Government-Backed Loan Programs

The Indian government offers various loan programs specifically designed to support MSMEs. The central government and the respective state governments have come up with various schemes and programs to support SMEs, register for such programs and take advantage of them.

7. Prepare for Due Diligence

Keep all docs like licenses, tax filings, statements from business bank accounts, contracts etc handy as the officials would want to verify all these things as part of their process of due diligence.

8. Negotiate Terms and Conditions

Once you've received a loan offer, carefully review the terms and conditions. Negotiate interest rates, repayment terms, and any additional fees or charges. Don't hesitate to shop around and compare offers from different lenders to find the most favorable terms.

9. NBFCs

Finally lets look at the best option for MSMEs/SMEs which is NBFC business loan lenders in the market. Traditional banks/mainstream lenders come with very strict needs when it comes to lending money to some business owners like needing submission of collateral and many other guarantees which is not easy for an SME owner. Understanding this financial gap for the sector NBFCs have stepped up and have started solving this gap in the form of loans being given without a need for collateral. The application processes are simpler and are digital and the approval process is also faster followed by loan disbursals. In conclusion, for a small business loan for an MSME an NBFC would be the ideal option.