Are you planning to go to a bank to ask for a business loan to start your eCommerce business? Well, chances are they would want a formal proposal from you. Want to know everything about how to get business loans from a bank as a small business owner? Here’s a full guide.<\/p>\n
Budding entrepreneurs may have a passion or hobby that has the potential of being converted into a commercially viable business over a period of time.<\/span><\/p>\n Before starting an eCommerce business<\/a>, you should gather various information for your proposed online business by carrying out research\/surveys. After that, your first step should be to prepare a written business plan which is commercially viable. <\/span><\/p>\n A well-documented business plan will have details like:\u00a0<\/strong><\/p>\n You would need this plan when you go to the bank to ask for that loan.<\/p>\n Related read:\u00a05 Top business plan templates you need to get started<\/a><\/strong><\/p>\n A business loan proposal passes through the lens of six C\u2019s viz, Character, Capacity, Capital, Condition, Collateral and Cash flow. <\/strong><\/p><\/blockquote>\n <\/p>\n Here are the things that you will need to present to the banker:\u00a0<\/strong><\/p>\n Educational background\/qualifications of promoters, their<\/span> character, capacity, capabilities etc, family background, support from family if any,<\/span> previous professional experience in the proposed business activity. <\/span><\/p>\n Your KYC-related documents\/papers for the proprietor such as PAN, Aadhar Card etc will be scrutinised.<\/span><\/p>\n Your paper\/documents in connection with business entity formation and registration<\/span> \/statutory compliances i.e. licences, permissions for the business such as Shop Act<\/span> Registration, MSME Registration, FSSAI license, GST Registratio<\/a>n etc.<\/span><\/p>\n In the case of<\/span> an\u00a0existing business that has applied for a loan for expansion of business activity, you will also need to provide documents that show your books and accounts, tax compliances etc.\u00a0<\/span><\/p>\n The banker will also inquire about the applicant\u2019s CIBIL score.<\/strong><\/span><\/p>\n The proprietor\u2019s <\/span>CIBIL<\/span> score<\/span> is an important factor that lenders look at while evaluating a <\/span>loan<\/span> application.<\/span><\/p>\n The CIBIL score is a three-digit numeric summary of the credit history of the applicant\u2019s<\/span> loan accounts or credit cards, and their payment status, as well as outstanding<\/span> amounts’ day past dues etc., if any.<\/span><\/p>\n The CIBIL score reflects your creditworthiness,<\/span> based on your borrowings and repayment history, as shared by lenders. It usually<\/span>\u00a0<\/span>ranges from 300 to 900. <\/span><\/p>\n Generally, loans are sanctioned to applicants whose<\/span> CIBIL score is greater than 750. Hence it is advisable always to pay dues on time.<\/span> Late payments are viewed negatively by lenders.<\/span><\/p>\n Be prudent, do not use too much credit, and control your utilisation. Maintain a healthy credit mix of secured (like home loans and auto loans) and unsecured loans (like personal loans and credit cards). There is a negative implication of having too many unsecured loans.<\/strong><\/p><\/blockquote>\n Related read:\u00a0What is a credit score? Why is it important for your small business<\/a><\/strong><\/p>\n A <\/span>Project Report <\/b>is a document which provides details on the overall picture of the<\/span> proposed business. The project report gives an account of the project proposal to<\/span> ascertain the prospects of the proposed business activity.<\/span><\/p>\n It contains data on the basis<\/span> of which the project has been appraised and found feasible. It consists of information<\/span> on economic, technical, financial, managerial and production aspects.\u00a0<\/span><\/p>\n In other words, Project Report contains <\/strong><\/p>\n In short, the project report includes the cost of the project and means of finance and an executive<\/span> summary of the proposed business activity.<\/span><\/p>\n During the<\/span> interview of the budding entrepreneur, the banker may try to test your entrepreneurial mindset<\/a><\/span> such as decision-making, communication and negotiation skills, man management,<\/span> leading your team, risk-taking ability etc., as well as your achievements so far; if any.\u00a0<\/span><\/p>\n During the interview, the banker will<\/span> enquire about further details such as the applicant’s own capital, various sources<\/span> and uses of funds, market and competition survey\/information collected and your<\/span> various strategies to defeat the competition<\/a> etc. <\/span><\/p>\n On the basis of the project report and the given answers, the<\/span> b<\/span>anker evaluates the viability of the proposed venture by ensuring compliance with the<\/span> b<\/span>ank\u2019s loan policy\/guidelines.\u00a0<\/span><\/p>\n The bank evaluates the business on important parameters like the Break Even Point (BEP), liquidity, solvency and profitability ratios etc<\/strong><\/p>\n The banker while considering the business loan proposal, wants to become a major financial<\/span> p<\/span>artner in the proposed\/existing business.<\/span><\/p>\n Here are a few deciding factors for the banker to approve a business loan:\u00a0<\/strong><\/p>\n Generally, a banker\u2019s stake in the business ranges<\/span> from 60% to 75%. After studying the Project report, he interviews the proposer of the business entity <\/span>and vets the business proposal. <\/span><\/p>\n The banker will <\/span>analyse the risks perceived in the venture by performing a SWOT (Strengths,<\/span> Weaknesses, Opportunities and Threats) analysis of the following aspects –<\/span>\u00a0<\/span><\/p>\n After evaluating the suitability of the proposed place of business, and its proximity in relation<\/span> to the target group of customers, the banker will examine whether the business premises are owned<\/span> or rented. <\/span><\/p>\n In the case of rented premises, a Lease Agreement with the landlord with adequate<\/span> tenor needs to be registered with an appropriate local governing authority.\u00a0<\/span><\/p>\n In the case of an existing business, the banker will ascertain past and projected future<\/span> p<\/span>erformance & profitability of the venture by analysing the unit\u2019s audited financial statements.<\/span><\/p>\n He will also evaluate the projected<\/span> sales and profitability\/cash flow projections and the assumptions made thereof.<\/span><\/p>\n He will<\/span> ensure the adequacy of the working capital requirements as well as the term loan requirements of<\/span> the venture.<\/span>\u00a0<\/span><\/p>\n\n
Requirements from the bank\u00a0<\/strong><\/h2>\n
1. Personal details and capabilities\u00a0<\/strong><\/span><\/h3>\n
2. Documents <\/strong><\/h3>\n
3. CIBIL Score\u00a0<\/strong><\/h3>\n
What is a CIBIL score?\u00a0<\/strong><\/h4>\n
Pro tip:\u00a0<\/strong><\/h3>\n
4. Project report\u00a0<\/strong><\/h3>\n
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Preparing for the interview<\/strong><\/h3>\n
How will the bank decide to approve the business loan?\u00a0<\/strong><\/h2>\n
Quality of the project plan\u00a0<\/strong><\/h3>\n
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The location of the business<\/b>\u00a0<\/b><\/h3>\n
Analyzing past performances and future prospects\u00a0<\/b><\/h3>\n