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 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, and here are 11 of those:
- Know your need
A businessman should Firstly, 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’s 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 (bills, payable salaries, vendor payments, etc.) from the incoming money (through sales, payment receivables, etc.).
Also, keep an account of the personal and business assets which are owned by the borrower which can be provided as collateral, can be sold or they 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 standing, age, nature of business, turnover, years of business continuity and others.
- Know your business plan
The borrower must have a detailed business plan which is ready to show.
- Know which documents you require
Before the borrower extends his application to the lender, he must gather all the required documents (such as identity/ age/ address proof, business licenses, bank statements, etc.) with their photocopies. The lenders would thus need them for verification to process your loan.
- 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 both) in order to compare and to choose the best according to the needs. Loan against property, loan against credit card receivables, loan against financial securities or the shares and the term loans are some of the common business financing alternatives.
- Know re-payment alternatives
The borrower should be aware of the various repayment options which are provided by the lenders.
- 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 credit worthiness by verifying the credit history. If the borrower doesn’t have collateral/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 thus advised to know all these things and then prepare yourself before approaching the lenders and then applying for the business funding.