Essential Factors to Consider while taking a Business Loan
It is effortless to get a loan unless you are in need of it. Everybody who has ever required a loan knows this. Be it for starting a business or for expanding one, business loans are a lifeline. The money earlier was always short in supply. However, thankfully, today, there are many financial institutions that are willing to lend you money to improve your business.
When it comes to doctors, architects, CAs, or any other professionals who can quickly get a business loan, a lender can invest in the business and virtually back the borrower’s repayment capacity. By attaining mere confidence in your ability to lead a business is not enough when the stakes are very high. A loan for your business can be a game-changer as you are already waiting for your enterprise to hit the high-growth path. However, it is always necessary for you to consider the critical factors before you apply for a business loan.
When you have timely access to finance, it is essential for running a business successfully and profitably. There are business loans that have a credit facility that is designed for such situations only. They are also extended by various financial institutions operating in the country. However, the applicant has to fulfil certain conditions to get the application approved. However, when a business owner thinks of availing a business loan, you should consider all the crucial factors to make the right decision for his business.
Business Loan Basics: It is most likely to be some confusion or a lack of clarity about business loans when you are looking for them. Hence, it is always essential to clear all the doubts at first.
A business loan is typically an unsecured loan. It is provided to a self-employed individual and entity. It can also be availed for any business upgrade or equipment purchase. The loan is then paid in equal instalments at fixed intervals like every month. You would also have to maintain your business for at least 3 years before applying for any such loan.
There are also different types of entities that can be funded under a business loan. The list includes Proprietors, Partnership firms, Private Limited Companies, Closely held Limited Companies, and Individuals. You would also have to furnish the specific documents to establish the credentials of the entity going for the business loan application process. There is no requirement for any collateral or security guarantee for an online business loan.
Don’t Borrow More Than Requirements: It applies to all types of loans! You may get tempted to avail of a bigger business loan, invest more money in your business, and reap higher benefits from it. But, it is also not the right approach. But, before you start getting benefits from the business loan, you will have to repay the loan in EMIs regularly. However, you need to ensure that the math worked out well before deciding the loan amount.
Shop Around: In a business, the loan interest rate is one of the most critical factors to help you decide which lender to borrow. There are also several private and public financial institutions, and NBFCs offer business loans. However, it is imperative to check the various lending options available to make an intelligent choice. The interest rate would also impact the monthly outflow of cash and the overall cost of the loan.
Be Ready with Required Documents: Apart from the meeting eligibility, the business owner has to submit the required documents for a business loan. NBFC business loans are also offered at less stringent terms and conditions and minimal documentation. The prospective buyer has to also submit P&L statements, bank statements, ITR, and PAN. It is also worth mentioning that the borrower should check the terms and cost of the loan. You can also consider APR instead of just interest rate. It consists of all the costs associated with the business loan. An online business loan is always given after assessing the business’s potential and the ability to return the debt with applicable interest. In order to make the necessary decisions, financial institutions require documents that establish the business’ credentials. As identity proof, you can submit a copy of your Aadhaar card, Passport, Voter’s ID card, PAN card and Driving Licence.
Focus on Credit History: It is a vital decision making factor! The borrower’s credit history is also a crucial aspect that is taken into consideration by the lenders while processing the loan application. The report also helps you determine if the borrower would repay the loan in a disciplined fashion. The applicant should also check his CIBIL score and ascertain that it is more than the one required by the borrower. However, suppose it is below the required threshold. In that case, the business owner should work towards improving it before applying for a loan.