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Can Sole Proprietor Get A Business Loan?

Can Sole Proprietor Get A Business Loan?

Do you know that sole proprietorships are the most common form of self-employment in India? These include thousands of solely run businesses like Kirana stores, restaurants, pharmacies, travel agencies, medical practices, and much more. Given that sole proprietorships run in thousands, certain lending institutions not only sanction them business loans but do so at affordable interest rates.

Business loans offered to sole proprietors are usually open-ended, meaning they can use them for any business-related expenses. These can include paying rents and salaries, managing working capital, diversifying in other products or activities, purchasing new equipment or machinery, conducting marketing and publicity, etc.

Safe to say, a sole proprietor can benefit manifold by availing of big or small business loans. Let’s understand these advantages in detail.

Benefits of Business Loan for Sole Proprietors 

Here are the top features and benefits of small/big/startup business loans for sole proprietors.

Let’s You Avail Funds in Different Ways

When sole-proprietors opt for business finance, they often have the option of using only as much as they need, rather than a pre-approved lump sum. This is especially helpful when you know you need a certain amount of funds to start with and may require more as you go along. Such off-shoots of business finance are called money taps or business lines of credit. 

Options like a business line of credit help you plan your finances better. A business line of credit also enables you to pay interest on only the amount borrowed, not the entire pre-approved amount.

Control stakes in your business

Sole – proprietors may consider third-party investor funding to expand their business. However, this investment avenue comes with its own set of perils. Where a loan only asks for EMI repayment, investors ask for a significant stake in your business along with the principal amount.

Depending on how many investors you partner with, you may end up diluting your ownership stake to a minority one. This can pose a problem, especially when you want to take an important decision for your small business, as you will have less say in the outcome. Instead, a small business loan only asks that you repay your EMI on time.

Helps Manage Cash Flow

A sole proprietorship may not always have a positive cash flow, especially if it’s new or operates a seasonal business. This can lead to you racking up a few bills and outstanding salary payments in a year without enough revenue to cover them. A small business loan can instantly sort you out in such instances as it can keep your cash flow steady during leaner months.

Aids in Growing Your Business

As mentioned above, you can do a number of things with business finance – from diversifying into different activities to opening branches to investing in equipment and more. Therefore, at affordable interest rates, you receive a substantial amount of cash that goes a long way in keeping your sole proprietorship afloat and contributing to its growth.

How to Become Eligible for a Sole-Proprietorship Business Loan? 

Listed below are three simple ways through which sole-proprietors can boost their chances of getting approved for business finance. 

Prepare a Written Business Plan

Outline a written business plan, which can be small or elaborate. It instils confidence in your lender that you have a strategic vision to execute your business idea.

Apart from explaining your business idea, your plan must include the next steps, present business financials, applicable financial projections, people hired, etc. All these sections will show the lender how you can repay the loan.    

Check Your Credit Score

Even if your sole-proprietorship business hasn’t racked up a credit score yet, be sure to check your personal credit score. If your score is a tad low, fret not. You can still apply and get approved for a small or start-up business loan at a slightly higher interest rate. Once you improve your credit score by repaying your credit card bills and pending EMIs in time, you can renegotiate your loan ROI with the lender. The higher the score, the better your chances of approval at low-interest rates.

Compile Your Documents Correctly

Submitting incorrect or incomplete documentation can lead to rejection. So, be sure to download or physically collect the document checklist from your lending institution before applying.

Typically, lenders ask for documents such as identity proof, business proof, previous balance sheets and profit and loss account, office or shop lease agreement, business plans, etc.

Conclusion

Are you looking for a start-up business loan or want funds to expand your solo venture? If so, then choose Tata Capital as your financial partner. We extend all types of business finance for sole proprietors, partnerships, companies and corporations at affordable interest rates, flexible repayment tenures, and minimal documentation.

To know more or to start an online application, click below!

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