Gone are the days when only tier-1 companies could attract funding. With the Indian government focused on uplifting MSMEs, they have now emerged as the top priority for financial institutes. As a result, the number of SMEs operating in India has increased to 36.18 million.
However, with a few million MSMEs in the market and RBI regulating the cash reserve ratio (CRR) at 4% and statutory liquidity ratio (SLR) at 19.5%, the demand for funding far exceeds the supply. So simply applying for a loan does not guarantee your chances of receiving financial aid. If you are an engineer looking for a loan to expand your manufacturing business, read along to know how to solidify your chances of approval.
1. Clearly Communicate the Amount of Funding you need and the Purpose it will Serve:
While seeking a business loan for engineers, you need to communicate the exact amount you are aiming to borrow. Lending institutes also require you to provide specifics of how you wish to utilize the fund. For instance, you are planning to borrow Rs.10 lakh for buying two motor graders for Rs.2.5 lakh each, one excavator for Rs.2 lakh and the remaining Rs.3 lakh for conducting promotional activities. Financial institutes look for realistic quotes so conduct in-depth research before approaching a lender. Lenders like Bajaj Finserv offer loans up to Rs.15 lakh to engineers.
2. Include Realistic Future Projections:
After providing elaborate answers regarding the amount of funds you require and how you plan to use it, now focus on how you plan to repay the amount. If you have conducted a future projection study or have received positive feedback from customers, including tangible proof of the same, or if you are planning to upgrade infrastructure, include a valid proof of how it will impact your bottom-line.
3. Keep all Financial Documents Handy:
All lenders require you to submit certain mandatory documents for an engineer loan along with the loan application form. Generally, copies of past financial statements, bank statements, and filed tax returns are required. These help them assess the creditworthiness of your business and the risk associated with lending to you. However, certain financial institutions only require you to complete minimal documentation including KYC details, proof of business vintage, engineering degree certificate, and photograph, for availing Loans for Engineers.
4. Provide Relevant Information about Key Stakeholders:
When a financial institution is lending money, there is risk of its investment turning into bad debt. In an attempt to reduce the associated risk, lenders attempt to gain a better idea about your business and the management. Aid the lender by providing background information about key officials, their job roles and responsibilities as well as their resume.
5. Arrange for Collateral:
Most lenders require you to pledge some sort of asset as collateral against the loan. A collateral can be of two types – immovable property like your house, land, etc., or liquid assets like a fixed deposit, LIC, shares or bonds.
Banks and government funding bodies generally offer secured loans. However, NBFCs in India like Bajaj Finserv, are now coming up with new generation lending products like Engineer Loans which are collateral-free and integrated with a host of borrower-friendly features like flexible tenure enabling you to borrow funds as per your needs and repay when you can.
6. Focus on your Credit Score:
Your credit score reveals the amount of risk an investor accepts while lending to you. A high credit score translates into low lending risk. A score of 720+ is considered to be very good for borrowers. Outstanding loans, delay in repayment, and high credit usage are some of the factors leading to a low credit score. Conduct some research and utilize online credit rating tools, to gain a better understanding of your credit score.
7. Calculate your Liquidity Ratio:
For small business owners, liquidity ratio is used to gauge the firm’s financial standing. Liquidity ratio is a comparison of your current assets against current liabilities. A ratio of 2:1 is viewed a sign of sound financial health. Lenders utilize this ratio to evaluate your ability to repay the loan. You can negotiate terms and interest of the loan backed by a healthy liquidity ratio.
A lender wishes to know the in and outs of your business before extending you an offer. Help the funding body by furnishing information about the nature of your business, short-term goals, and your vision. Remember, the funding process is time-consuming and patience is the key to success.