With the advent of the online lending platforms, getting finance for the businesses has now become much simpler for the entrepreneurs. The online loan process to avail business loan is thus faster, safer and it also offers the benefit of a wider choice of financing. However, there are still certain things which every business owner should know before he obtains a business loan. Take an overview of the business loan.
Business loan facts
Know your need
- A businessman should identify the business need in order to get an estimate of how much money he needs.
- Taking a much higher or lesser amount than the requirement isn’t a good choice.
- Also, lenders would take the borrower more seriously when he is clear about his needs.
Know your financial condition
- The borrower should know where he stands financially before considering a business loan.
- He must figure out how much money he saves each month after deducting all the business expenses such as
- Payable salaries
- Vendor payments, etc. from the incoming money through
- Payment receivables, etc.
- Also, keep an account of the personal and business assets
- Owned by the borrower
- Provided as collateral
- Can be sold, or
- Can be given on lease in the wake of a cash crunch.
Know your eligibility
- Once the borrower understands his need and the financial situation, the next important thing is that he should be aware of the loan eligibility.
- Every lender, bank or NBFC thus has its own set of parameters in order to decide whether an applicant is eligible for obtaining a business loan.
- Some the most common criteria are
- An applicant’s credit score
- Age of the applicant
- Nature of business
- Years of business continuity and others.
Know which documents you require
- Before the borrower extends his application to the lender, he must gather all the required documents such as
- Address proof
- Business licenses
- Bank statements, etc. with their photocopies.
Know the application process
- The borrower should know the application process of getting the business loan.
- The process broadly includes three sub-processes
- Submitting the business loan application with all the mentioned required documents.
- Getting the approval from the lending institute or the bank, and
- Receiving the funds either through cheque or bank transfer.
Know various financing options
- The borrower should be aware of all the funding options secured and the unsecured business in order to compare and to choose the best according to the needs.
- The common business financing alternatives
- Loan against property, credit card receivables, financial securities, or the shares and the term loans
Know re-payment alternatives
The borrower should be aware of the various repayment options which are provided by the lenders. If the borrower does not want to take the business loan, he can check the alternatives of business loan.
Know about APRs
- The Annual Percentage Rate (APR) is thus a vital factor to look for when the borrower is comparing lenders.
- APR gives the borrowers a combined annual rate for their loan, including the fees and the interest.
Know your credit report and CIBIL score
- Your lender would always analyze the creditworthiness by verifying the credit history.
- If the borrower doesn’t have collateral or asset to be provided as security, then the CIBIL score plays a significant role in deciding the business loan eligibility and the amount you can avail.
It is advised to know all these things and then prepare yourself before approaching the lenders and then applying for the business funding.
Important tips while applying for a business loan
- The start-up costs for a new business can be considered which are the purchase of goods and equipment, marketing costs, payment to the employees and thus the list goes on.
- It’s not always feasible to bootstrap the way through major expenses, and the businessman may want to consider external funding.
- Loans from the commercial lenders like banks or the private lending institutions may thus be an option, but the borrower should consider the pros and cons of seeking a commercial loan. The borrower can also refinance the business loan.
Know your business inside out
- From a lender’s point of view, a business owner or the manager stumbles on the straightforward questions which the clients ask about the business.
- Convincing someone in order to invest in the business for a period of time is even a harder task than selling something which they could use immediately.
- You should feel comfortable in talking about all the aspects of your business including
- Its past performance
- The present challenges, and
- The plans for future.
Keep your records up to date
- If lender assesses the business they would expect to receive the latest records like
- Bank statements
- The statutory and management accounts
- Proof of the revenues
- Contracts, etc.
- Therefore it is essential that the latest copies of these can be provided quickly and preferably in a decipherable format.
- The best advice is to keep all the records current and readily available.
Have a plan and know the purpose
- Knowing and then being able to present the details behind the purpose of the loan is important to any lender, as it would be to anyone who is parting with their cash.
- The borrower should have a clear plan of how the money will be spent, and how this will support the growth plans.
Communicate honestly and openly
- The fact that all the records are in order and they are up to date.
- The amount and the purpose of the financing which the borrower is seeking.
- Once the borrower has selected your lender and has submitted his application, he should then treat ongoing communication with them as the top priority.
- The borrower should respond in a timely manner and then manage expectations of any materials which the borrower is preparing.
- The discipline with which the borrower handles the application process is often indicative of the repayment discipline, so he should make a good impression.