5 Must-Do Things before You Apply for a Business Loan
Running a business entails a significant amount of responsibility on the part of the owner. Instead, the complete responsibility for the success or failure of your business venture rests on your shoulders. You are required to put in long hours, travel extensively, handle multiple tasks as well as arrange for finance as and when needed. During the initial phase of your business, you have to rely on your personal sources of funding to take care of the financing needs of the company. After a certain period of time, when the business activities are on the rise, you can feel the paucity of funds, and as your personal sources of finance have dried up, there is no other option for you but to look at external sources of funding. However, some of these finance sources might require you to part with some of your stake in the company, which you might not be willing to accept. Thus, the most suitable option for you in such a scenario is to apply for a Business Loan.
About Business Loans
Business Loans are a popular financial product and are offered by financial institutions to help you manage critical business-related expenses efficiently. Depending on the nature of expense and the amount required, Business Loans could be secured as well as unsecured. The rate of interest for Business Loans in India varies from lender to lender, and the repayment tenure can be chosen for up to 5 years. Due to rising demand from businesses as well as push from the Government for setting up of more industries as well as making the available easy credit for business owners, many financial institutions have started offering different types of Business Loans.
You just need to log-on to their website or access various online marketplaces and Apply for a Business Loan most suitable according to your requirements. With a secure online application process and minimal documentation requirements, most Business Loan applications are approved within a few working hours, and the loan is disbursed within 72 hours.
Must do things when applying for a Business Loan
When you are considering a Business Loan, you must remember that it is not an overnight process and requires some beforehand preparation on your part. Here are five must do things when you are applying for a Business Loan:
- Check your credit score
Due to the turmoil being experienced in the banking and finance sector due to instances of frauds, NPAs (Non-Performing Assets), misappropriation of funds, most lenders have become very particular about the eligibility criterion. One of the most important factors in determining your eligibility for a Business Loan is your credit score. In order to increase the chances of your loan application being approved and get the lowest interest rates, your credit score should be above 750. So, before you apply for a loan, it is advisable to check your credit score, and if it is below 700, then you must delay your application for some time and instead take professional help to improve your credit score.
- Prepare a business plan
In order to impress the lenders about your seriousness, you must prepare a comprehensive business plan, irrespective of the loan amount sought. This plan should incorporate all details regarding the loan amount required, how you will use it and how do you plan to repay it. You should take help from a business consultant or a chartered accountant while preparing this business plan and make sure that it covers all the essential aspects.
- Assess your requirements
You need to remember that the amount you are going to avail is a loan and carries an interest cost. So, you should only apply for that much amount which will suffice your requirements. There is no point paying interest on the money and not utilising it for business expenses. So, you must sit down with your accounting and finance team and calculate the exact amount you require and if your financials would allow you to repay the EMIs (Equated Monthly Instalments) on time.
- Focus on the APR
Annual percentage rate (APR) is the total cost of the loan for you, in a year. It is a better indicator than the interest rates and gives you a clear idea as to how much is the loan going to cost your finances. Sometimes, some lenders might have lower interest rates but other charges they levy might make the loan more expensive for you as compared to other lenders. So, always be forthright while asking an explanation regarding the total APR on loan.
- Research and negotiate
Always remember this golden rule, you need to understand that the repayment period for business loans might extend up to 84 months and as such your interest expenses might become very high. Even a slight decline in interest rates can help you save a lot of money on interest expenses. So, make it a point to research around and negotiate hard with your lender to get the best deal.
You must follow these five essential and useful tips as they can help you save a notable amount of money when you apply for a business loan.
Also Read:5 Business Expansion Ideas and Ways to Fund Them
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