In pursuit of implementing expansion projects and meeting growing customer demand, or maintaining cash flow into the business, you require a revenue. A small business loan can be a great option to help you expand your business, buy new equipment, to start a marketing campaign or to even help with your working capital needs. Almost all major Non-Banking Financial companies (NBFCs) offer special business loan schemes in India with attractive options to help you with each and every business need that may come up.
However, applying and securing a business loan may involve a lengthy procedure and as a business owner, you need to be clear about the complexities involved in the process of availing the loan. Choosing the right lender, zeroing in between leasing or outright purchase, assessing your current financial liabilities and evaluating your loan tenure are some essential elements to consider, while planning for business financing. Here are a few factors you need to know before applying for a business loan.
Loan Amount You Will Need
Figure out how much money you really need for your business. Evaluate all your business planning and calculate the money you will need according to it. While a higher amount will land you in greater debt which means more financial burden, a lower amount may cripple your business due to lack of funds midway. So, always decide on a practical amount to borrow from the lender, so that your business needs are fulfilled and repayment of the loan is not cumbersome.
Type of Business Loan
Know what type of business loan you need based on your requirements and payback capability. There are various business loans like short term business loans and long-term business loans offered by the lenders. You don’t need a long-term loan when you require a reasonable amount of money for a limited time period. Be very careful about the time in which you can repay the loan amount to the lender along with the interest. Lenders provide dedicated loans for certain market verticals. Moreover, there are options of term loans and flexible lines of credit to be considered. Term loans are ideal for long term needs and lines of credit are great for the fulfillment of short term financial needs.
Interest Rates and Other charges
Know about the Annual Percentage rate (APR) for the interest charged by the lender. Check out whether the small business loan rates are fixed for the entire tenure or if they are variable for your case. Be informed about the other charges that may be involved such as prepayment penalty, processing fees and service charge when calculating the total amount that you need to pay back to the lender. All these charges add up to the overall cost of borrowing. Make sure the EMIs to be paid to the lender is affordable and adheres to your calculations.
Repayment Terms of The Lender
The ease of repayment of the amount borrowed and flexibility in repayment are crucial factors that need to be considered before applying for the loan. Know about the repayment methods and policies of the lender. You can also consider payout options like auto-debit facility from your bank account. Also look for flexibility in repayment of the loan- this includes features like prepayment of the loan amount without incurring any penalty charges or extension of the tenure of the loan in case of lack of funds.
Collateral Required for The Loan
Check out if the lender needs any collateral to provide you the loan. Generally, they may ask for a collateral to lend money to small businesses. Your business must have a hard asset that can guarantee the repayment of loan. In case of secured loans that are backed by some collateral, the interest rate charged by the lender is lesser than unsecured loans. The choice of whether to provide some collateral or not depends on the applicant as most lenders provide both the options.
Other Terms & Conditions
Make sure to know all the terms and conditions of the lender before you apply for the loan with them. Watch out for any amendment clause in the agreement and seek clarifications from the lender before agreeing to it. Never exhibit haste is reading the ‘Terms & Conditions’ to avoid any unnecessary hassles which might creep up later.