A business loan can help catapult your small business into its growth phase. If you're looking for a machinery upgrade, it can help you update your systems and buy equipment with ease. It can also aid in ironing out cash flow problems by giving your working capital a boost. There's no denying that it is one of the most flexible and cost-effective ways to fund your varied needs. But, before you apply for a business loan, make sure that you're equipped with all the information.
Take a look at 7 things you need to know for applying for a business loan:
1. Find out if you meet the business loan eligibility criteria
The eligibility criteria for a business loan are the first requirement that every applicant must fulfil. For example, you need to be an Indian national and a registered taxpayer with proof of business.
How this helps?
Matching these criteria helps increase the chances of your loan being approved. It also makes your application authentic and gives the lender confidence about your repayment abilities.
Additional read: Basic requirements to get a business loan
2. Check if you have the necessary documents
There are a few documents that you must attach along with your business loan application to ensure that it is accepted in the first go. These documents include your PAN card, address proof, photo ID, business vintage and voter's ID.
How this helps?
Submitting these documents helps the lending institution to be sure of your credentials. It also helps them verify your eligibility.
3. Check and compare business loan interest rates
Study the market thoroughly to understand and evaluate the different types of business loans that are available.
How this helps?
This research can help you compare and analyse the rates of interest offered by each lender. So, you can choose an interest rate that is the most affordable for you. This also gives you information about the lender's reputation, customer service and other important details.
4. See the tenors available and calculate your repayment
It is important to select your tenor with care. This is because it is the period over which you will have to make EMI payments in a timely manner. If you default on your payment(s), your expenses increase as you pay penalties on the default.
Also, a flexible tenor gives you the option of paying low EMIs for several months. If you want to clear the loan quickly, you can opt for a shorter tenor with higher EMIs and vice versa. So, choose a tenor that allows you to repay the loan per your convenience.
Once you select a tenor, don't forget to calculate your EMI beforehand to avoid unpleasant surprises once the loan is sanctioned.
5. Check the prepayment avenue and all related fees
All lenders charge certain fees and charges on the loan taken by you. These include processing fees, legal fees and prepayment charges, amongst others.
Since these charges add to the cost of taking a loan, it is important that you ask your lender about the various fees to be paid before submitting your application.
Additional read: Types of business loans explained
6. See if you get access to value-added services
Value-added services such as online application and online loan management make your experience even smoother. Check which of these facilities are being provided by your lender.
Applying for your business loan online can save you a considerable amount of time and money and is also ideal for those who do not have a branch close to their home or workplace.
7. Find out if there is a Flexi loan facility
Financial needs for growing business are sometimes unpredictable. This is where a Flexi loan facility comes into play. It allows borrowers to withdraw sums of cash per their need.
This interest over the borrowed money can be paid on a monthly basis in the form of EMIs, and the principal is payable only at the end of the tenor. This brings down your monthly cost of repayment, and helps you manage your cash flow more easily.
Moreover, a Flexi loan charges interest only on the amount utilised rather than the whole amount sanctioned, which helps you save money. You can also convert a Flexi loan to a regular term loan if you choose to.
A Flexi loan facility is thus very useful to business owners for growth capital, working finance needs, equipment purchase, etc. Once you have armed yourself with this information, it is time to choose the right business loan. Choose a lender with competitive interest rates as well as a one with good customer service.
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