There are multiple factors affecting the terms of a business loan, some of which you can control and some beyond. To improve your chances of loan disbursal, gain an understanding of the factors you can control or manage, and the factors beyond your control.
Factors which you can control:
- A well-thought-out business plan: Producing well written and pragmatic business plans provide the lenders a clear idea about your future goals. Good business plans are capable of answering three important questions - How much funds do you need? How do you plan to invest the funds? How do you plan to repay the money?
- Accurate and complete application documents: Availing a business loan requires assembling time-consuming paperwork. Consider the help of a financial adviser to get your paperwork in order.
- Financial statements: Irregularities in financial statements can influence a lender negatively. Most business loans require the submission of income tax returns and other financial documents. It is advisable to hire a professional bookkeeper to get your financial documents reviewed.
- Previous working relationship: Financial institutions with which you have previously worked are more likely to fund you. As they already have an idea regarding your financial standing and the risk associated to your business, opting for such lenders prove beneficial.
- Collateral: Most lenders seek some form of collateral to reduce the amount of risk involved in lending. Highly liquid assets are considered as collateral, and most financial institutions consider a high value collateral while providing business loans. However you can opt for non-secured loans which do-not require any collateral. Certain NBFCs are offering collateral free business loans.
- Ability to repay the loan: Lenders evaluate your capability to repay a loan. They go through your previous records, credit score and credit rating to evaluate your repayment capability. Lenders consider your debt to income ratio as well as your cash flow statement before approving your loan.
- History: Most lenders prefer to lend to businesses with a maturity of three years or more. However, this time frame can differ from lender to lender.
Things beyond your control:
- Industrial or Technological risk: Most lenders are doubtful about lending to certain industries or technology-related businesses. For example, lenders may avoid borrowers who are looking to venture into areas that have chances of violating environmental norms.
- Market conditions: Interest rate fluctuations and credit availability factors are beyond the lender as well as the borrower’s control. The only means to overcome this limitation is by utilizing your relationship with the bank officials. Look out for credit availability and lower interest rate windows, when they appear.
A proactive approach towards availing a business loan can help you secure funding quickly from willing lenders.
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