Getting finance at the right time is a crucial requirement of every business. Nowadays, both Non-Banking Financial Companies (NBFCs) and Banks offer a wide range of options when you apply for a business loan. These loans can help you in expanding your operations, improving your sales, and so on. However, for a successful business loan application, it is essential to know these tips.
Know your business requirement:
When you apply for a business loan, it is imperative to know precisely what your business requires. You need to be clear on the following aspects like:
- What is the quantum of loan you require?
- What is the tenure of the loan you are looking to avail?
- What are your plans for the optimal usage of those funds?
- In which area of operation are you planning to invest the funds?
- What are the ways for you to generate returns? And so on.
By knowing answers to these questions, it will be easy to calculate the actual amount required for your business. You will neither borrow too much or too less, as neither would be beneficial for your business.
Have your business plan and financials ready:
When you go for a business loan, you need to have your financial statements and a solid business plan in hand. You need to present a viable plan of action to the lender along with past and present cash flow statements, income statements, and so on. Offering a feasible business plan will show the lender your commitment to the business.
Your financial statements will prove your repayment capacity. You also need to include an executive summary along with a revised monthly budget of your income and expenses (repayment amount added) to the lender.
Research the types of loan available:
There are many kinds of business loans available in the market and are offered by both banks and NBFCs. From term loans, loan against securities, Line of Credit, Equipment Loans to Cash credit, the options are many.
The differences in these loans depend upon the need and requirements of your business, amount eligible, and the time frame for the loan approval and disbursal. Knowing the type of loans and their details will help you in choosing the right kind of loan.
Research Lenders and know their charges:
Once you know the type of loans available, the next thing you need to know is about the lenders and the fees associated with the business loan. Compare different lenders and see what kind of loans or credit they offer.
Find out the terms and conditions of their business loan products and their charges. Know the different types of payment plans, the various fees, penalties and charges as they vary from lender to lender. This comparison will help you in zeroing in on a suitable lender who will be the right fit for your credit requirements.
Know your credit score:
The first and foremost thing a lender would check when you apply for a business loan is your credit score. It is a sign of your creditworthiness and will assure the lender of your repayment capacity. It will also help the lenders to ascertain that they are financially backing a person who has sound financial behavior.
Before you decide to apply for funding, check your personal and business credit score. You need to perceive how the lender will view your credit score and report. There are many lending websites online that let you check your credit score for free. Check the report thoroughly and in case of any discrepancies, get them corrected immediately. Then again, if you have a low credit score, it is wise to take corrective measures to improve the score and then apply for the loan.
Have a detailed loan proposal:
Along with your business plan and financial statements, you also need to have a comprehensive loan proposal. You need to appraise the lender on how you are planning to use the loan to improve your business. It should also contain the answers to the questions of:
- The loan amount
- The areas of fund deployment
- Repayment plan along with your usual monthly expenses
- Alternative repayment plan (in case of low generation of profits)
Together with the business plan and financial statements, this loan proposal will help the lender further assess your loan application. Furthermore, it will also help them determine whether the requested loan amount will fulfil your requirements.
See whether you require collateral:
Often your invoices and assets will come in handy when you apply for a business loan. You can offer them as collateral and secure a business loan. When you submit your current assets as collateral, you can avail Cash credit for your business’s working capital requirements. In the same manner, by offering your assets as collateral, you can get a higher loan amount at a lower interest rate as it becomes a secured business loan.
While these factors help you avail a business loan successfully; you also need to assess how the loan will impact your monthly budget and financial well-being in the long run. You should be able to operate successfully without any disturbance in your usual monthly budget. Moreover, you need to assess the exact period it will take for you to pay off the loan.
There are many online business loan calculators that can be used to calculate your Equated Monthly Instalments (EMI) by setting varying interest rate, tenure and principal amount. You can submit these approximate calculations along with your loan proposal to the lender. By adding these approximate calculations to your standard budget, you will be able to gauge whether you will be able to handle the debt or not.
At the same time, make sure that you factor in the total cost of the loan in your calculations. Know thoroughly about any prepayment charges, penalties or any other fees along with the terms and conditions of the loan. By adhering to these points, you can effortlessly avail a business loan.
Angelique Chrisafis is the Guardian’s Paris correspondent. She is responsible for churning out quality articles based on her research while keeping an eye on the tech world. She likes technology, gadgets, and food. Works as an individual contributor to the team.