How to Get a Business Loan With a Low Turnover?

Adarsh, a 25-year-old from Jaipur, dreamed of expanding his small stationery shop. His annual turnover was only ₹5,00,000, but he needed ₹3,00,000 to buy more stock and attract new customers. Every bank he visited rejected his loan application because of his low income. 

Feeling hopeless, Adarsh met a friend who suggested improving his financial records. He started paying bills on time, kept his credit card usage below 30%, and maintained proper accounts. Slowly, his credit score improved from 580 to 680. 

Next, he approached an NBFC instead of a traditional bank. They asked for his business plan and bank statements. Because Adarsh had worked on his finances, the lender agreed to give him the loan at a reasonable interest rate. 

Now, Adarsh’s business is growing, and he repays his loan without stress. 

Want to know how you can do the same? Read the expert tips below!

1. Improve Your Financial Health

If your business turnover is low, you can still qualify for a business loan – you just need to improve your financial health. This guide will show you step-by-step how to boost your credit score, cash flow, and profit margin to increase your chances of getting loan approval.

1. Improve Your Credit Score

Your credit score shows lenders how trustworthy you are as a borrower. If your personal or business credit score is low, getting a loan can be difficult.

Credit Score Range

Tips:

• Check your business credit score from bureaus like Dun & Bradstreet.
• Pay EMIs and credit card bills on time.
• Keep your credit utilisation ratio below 30%.

2. Keep Your Debt-to-Income Ratio Under Control

The Debt-to-Income (DTI) ratio shows how much debt you have compared to your income. Lenders prefer a low DTI ratio because it shows financial stability.

DTI Ratio Calculation Example

Tips:

• Pay off high-interest debts first.
• Consider debt consolidation options.

3. Improve Cash Flow Management

Cash flow shows how money is coming in and going out of your business. Positive cash flow helps assure lenders that you can repay the loan.

Tips:

• Collect receivables faster.
• Cut unnecessary expenses.
• Use cash flow forecasting tools.

4. Improve Profit Margin

Even with low turnover, if your profit margin is good, lenders may still be interested in giving you a loan.

Profit Margin Example

Tips:

• Focus on high-margin products or services.
• Improve operational efficiency.

5. Consider Alternative Lending Options

If getting a loan from a traditional bank is difficult, explore other options:

• NBFCs (Non-Banking Financial Companies): Offer flexible eligibility.
• Online Lenders: Provide loans with quick processing and less paperwork.
• Peer-to-Peer Lending Platforms: Let you borrow directly from investors.

Even with low turnover, if you improve your financial health, like increasing your credit score, managing debt, optimising cash flow, and boosting your profit margin, your chances of getting a business loan go up. Also, explore alternative lending options to make sure your business gets the necessary funding.

2. Prepare A Comprehensive Business Plan

Getting a business loan can be challenging, especially when your business has low turnover. However, with careful planning and a strong presentation, you can improve your chances. Here is a simple guide to help you.

1. Clearly Define Your Loan Needs

Before approaching a lender, it is essential to know:

• How much money do you need? Determine the exact amount required for your business needs.
  
  
• Purpose of the loan: Specify how you plan to use the funds, such as purchasing equipment, hiring staff, or marketing.
  
  
• Repayment plan: Outline how you intend to repay the loan, including the timeframe and source of repayment.

Being clear and specific shows lenders that you have thought through your financial needs and have a plan in place.

2. Develop a Strong Business Plan

A well-structured business plan is crucial. It should include:

• Executive Summary: A brief overview of your business, its mission, and objectives.
  
  
• Company Description: Details about your business, including its history, structure, and goals.
  
  
• Market Analysis: Information about your industry, target market, and competitors.
  
  
• Organisation and Management: An outline of your business's organisational structure and management team.​
  
  
• Products or Services: A description of what you offer and how it benefits customers.
  
  
• Marketing and Sales Strategy: Your plan for attracting and retaining customers.
   
• Funding Request: The amount of funding you need and how you will use it.
  
  
• Financial Projections: Forecasts for income, expenses, and profitability over the next 3-5 years.
  
  
• Appendix: Any additional documents, such as resumes, permits, or legal agreements.

3. Highlight Your Business Knowledge

Demonstrating your understanding of your business and industry can instil confidence in lenders. Consider:

• Experience: Share your background and expertise in the field.
• Market Understanding: Show that you know your target market and customer needs.
• Adaptability: Explain how you have responded to challenges and changes in the market.
• Commitment: Express your dedication to the business's success and growth.

Examples:

Ramesh's Small Retail Shop

Priya's Home-Based Catering Service

Final Tips

• Be Honest: Always provide accurate information to build trust with lenders.
• Prepare Documents: Have all necessary documents ready, including financial statements and legal papers.
• Seek Advice: Consider consulting with a financial advisor or mentor to strengthen your application.
• Stay Positive: Even if your turnover is low, a solid plan and clear vision can make a significant difference.

Remember, preparation and clarity are key. With a comprehensive business plan and a clear understanding of your needs, you can improve your chances of securing a business loan.

3. Explore Different Lenders

​If your business has low turnover, getting a loan can be hard. But don't worry – ​there are ways to improve your chances.

1. Consider Secured Loans

A secured loan means you give something valuable (called collateral) to the lender, like property or equipment. If you can not repay the loan, the lender can take the collateral. Because this reduces risk for the lender, they may offer:

• Lower interest rates
• Larger loan amounts
• Longer time to repay

For example, in India, you can get a secured business loan from banks or NBFCs. You might need to show that your business has been running for at least 2 years and is making a profit. You also need to own property or equipment to use as collateral.​

Example: Secured Loan Against Property

In this example, by using property worth ₹50,00,000 as collateral, you can get a loan of ₹40,00,000 at a lower interest rate.

2. Explore Alternative Lending Options

If traditional banks say no, other lenders might help:

• Peer-to-Peer (P2P) Lending: You borrow money directly from individuals through online platforms. It is faster and often more flexible. In India, platforms like Faircent and Lendbox offer P2P loans.​
  
  
• Revenue-Based Financing: Companies like GetVantage in India give you money based on your future sales. You repay a percentage of your revenue, so payments are smaller when sales are low.
  
  
• Merchant Cash Advances (MCA): You get a lump sum now and repay through a percentage of your daily sales. This is good for businesses with fluctuating income.

4. Other Considerations

1. Develop a Strong Business Plan

A comprehensive business plan demonstrates your business's potential and repayment capability. Ensure your plan includes:​

• Executive Summary: Overview of your business and objectives.
• Market Analysis: Research on your industry, target market, and competitors.
• Marketing and Sales Strategy: How you plan to attract and retain customers.
• Financial Projections: Detailed forecasts of income, expenses, and profitability.

A well-structured business plan can instil confidence in lenders about your business's future.

2. Utilise Accounting Software

Implementing accounting software like Tally or Zoho Books can streamline your financial management. Benefits include:

• Accurate Financial Records: Automated tracking of income, expenses, and cash flow.
• Easy Reporting: Generate financial statements and reports quickly.
• Compliance: Ensure adherence to tax regulations and financial standards.

These tools can provide lenders with clear insights into your financial health.

3. Seek Advice from Financial Advisors

Consulting with a financial advisor can help you:

• Assess Loan Options: Identify suitable loan products for your business.
• Improve Financial Health: Develop strategies to enhance your creditworthiness.
• Navigate Application Process: Understand documentation requirements and lender expectations.

Their expertise can guide you in making informed decisions and presenting a strong loan application.

4. Understand and Improve Your Credit Score

Your credit score plays a crucial role in loan approval. To improve it:​

• Pay Bills on Time: Ensure timely payment of all financial obligations.
• Reduce Debt: Lower your outstanding debts to improve your debt-to-income ratio.
• Monitor Credit Reports: Regularly check for errors and rectify them promptly.

A higher credit score can lead to better loan terms and increased approval chances.

5. Explore Alternative Financing Options

If traditional loans are challenging to obtain, consider:

• Microloans: Small loans offered by non-profit organisations or government programs.
• Crowdfunding: Raising funds through online platforms by presenting your business idea to potential backers.

• Peer-to-Peer Lending: Borrowing from individual investors through online platforms.

   

These alternatives can provide the necessary capital with potentially more flexible terms.

Conclusion

Getting a business loan with low turnover can be tough, but it is not impossible. Start by improving your finances – pay bills on time, reduce debt, and manage cash flow well. A good credit score and a simple business plan can show lenders that you are reliable.

If banks say no, try other options like secured loans, NBFCs, or peer-to-peer lending. These may have easier rules.

Keep your financial records clear and get expert advice if needed. Even with low turnover, showing that you can repay the loan and grow your business can help you get approved.

Be patient, stay focused, and explore all options. With the right steps, you can get the funds to grow your business.

FAQs

1. Can I get a business loan if my turnover is low?

Yes, you can still get a loan by improving your credit score, showing strong cash flow, or offering collateral to secure the loan.

2. How can I improve my chances of loan approval?

Keep your credit score high, reduce existing debt, and prepare a clear business plan to show lenders your repayment ability.

3. What if banks reject my loan application?

You can try alternative lenders like NBFCs, P2P lending platforms, or microloan schemes that have easier approval rules.

4. Do I need collateral for a business loan?

Not always, but offering collateral (like property or equipment) can help you get bigger loans at lower interest rates.

5. How important is a business plan for a loan?

Very important – lenders check your business plan to understand your goals, revenue potential, and repayment strategy before approving a loan.

Apply for Loans Fast and Hassle-Free

Apply Now

About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?