Is It Possible To Apply For A Business Loan In India As A Sole Proprietor?

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In India, many are entrepreneurial by nature want to be their own boss. Most of these people start small businesses and become sole proprietors of the establishment. In fact, it is one of the most common forms of self-employment in India.

There are thousands of sole-proprietorship businesses in India, including the local kirana stores, pharmacies, travel agencies, restaurants, etc. Like any other business, such proprietors, too, need regular funding or cash flow to keep their businesses afloat in the market and stay relevant and competitive.

Today, given the popularity of this category in India, one can easily get a business loan for the same. Business loans for this purpose are usually open-ended, meaning, as a business owner, you can use the funds for any business-related expenses without any restrictions. You can use the money for paying employees’ salaries, office rent, buying new equipments, marketing activities and so on.

Thus, it is safe to say that there are many benefits of business loans. Let us know more about these benefits.

 Use funds in different ways

As a proprietor, when you avail of a business loan, you have the flexibility to determine the amount you want to borrow rather than just get a specific pre-approved sum. This is helpful when you know that you will need a specific amount right at the start and some more later as you move forward. These off-shoots of business finance are called lines of credit.

A business line of credit helps you plan your finances better and allows you to repay only the interest on the borrowed amount and not the entire amount for a specific period.

 Easy availability

Today, many private and public-sector banks and NBFCs (Non-banking Financial Companies) offer different types of business loans. Also, these financial institutions tend to have simple eligibility criteria for business loans.

So, even if the first lender you approached denies the loan application, you may still find another one that is willing to sanction the funds. Not to mention, with lenders offering online services, you can apply for the loan at your convenience.

Helps in growing your business

One can use the funds from business loans for different purposes – from diversifying the business to opening a new account or any other purpose that allows one to grow the business. Theaffordable interest rates and flexible repayment terms allow you to maintain a good cash flow, enabling you to keep your business afloat and take it to the next level.

Have complete control over the business operations and management

Many businesses in this category consider getting funds from third-party investors. However, this funding arrangement can have a downside. When you avail of a loan, you only need to repay the amount with interest to the lender, whereas investors may ask for a stake or a percentage in profit, along with the principal amount.

Depending on the investor you partner with, you may dilute your ownership of the business stake, and they may even try to take over the operation and management. This can pose a serious threat to your long-term vision of how you want to steer the business forward.

Also, you may not be able to make important decisions regarding your business, as you will have to consult with the investors. So, to avoid such hassles and maintain complete ownership and rights of your business, it is better to apply for a business loan and just repay the EMIs (equated monthly instalments) on time.

Now that you are aware of the benefits of a business loan, here are a few simple tips that can boost your chances of getting the loan approved.

Have a well-laid-out business plan

When you approach any lender for a business loan, make sure that you have a proper business plan. This will help you explain to the lender how you will be utilising the funds and your business is a potential profit-making idea. This will help you instil confidence in the lender that you have a well-laid business strategy to achieve your goals and repay the amount on time.

Be aware of the credit score

Even if your business is newly established and hasn’t racked up any credit score, it is advisable to check your personal credit score. If you have a high credit score of 750+, and you have maintained a clean repayment history, then you can use this to your advantage and negotiate a better deal on the business loan interest rate.

On the other hand, if your personal credit score is low or does not meet the lender’s minimum score requirement, then fret not. You may still get the loan, but you may have to pay slightly higher interest than others. Once you improve the score by paying off all the dues, you can renegotiate with the lender on ROI (rate of interest).

Keep your documents in order

One of the key requirements for getting a business loan approved is to comply with the lender’s documentation process. Before you submit your application, it is better to visit the lender’s website and know the documents required for a business loan beforehand. This way, you can get all the papers in order in advance and avoid last-minute hassles.

Remember, if you fail to submit any document, then there are high chances that the lender will reject your application. Although the documents required for a business loan vary from one lender to another, most lenders ask for documents like:

    Identity proof

    Address proof (both residence and office)

    Previous balance sheets (duly audited)

    Profit and loss statement

    Business plan

    Shop lease agreement

Conclusion

If you are looking for funds to set up your own business or expand your solo venture, then you can choose Tata Capital as your trusted financial partner to get business loans. They are one of the leading private lenders in India, extending all types of business funds to sole proprietors at an affordable interest rate starting from 19% per annum.

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