Timely access to finance is essential for running a business successfully and profitably. Business loans are credit facility which is designed for such situations only. They are extended by various financial institutions operating in the country. However, the applicant has to fulfill certain conditions to get the application approved. Also, when a business owner thinks of availing a business loan, he should consider all the crucial factors related to it to make the right decision for his business.
Let’s take a look at the important rules that should be followed before availing a business loan in India.
Don’t Borrow More Than Requirements
It applies to all types of loans! You may get tempted to avail a bigger business loan, invest more money in your business, and reap higher benefits from it. But, it is not the right approach. Before you start getting benefits from the business loan, you will have to repay the loan in EMIs regularly. So, you need to make sure that you have the math worked out well before deciding the loan amount.
Business loan interest rate is one of the most important factors that will help in deciding which lender to borrow. Several private and public banks and NBFCs offer business loans. Hence, it is imperative to check the various lending options available to make a smart choice. The interest rate would impact the monthly outflow of cash as well as the overall cost of the loan.
Be Ready with Required Documents
Apart from meeting eligibility, the business owner has to submit the required documents for a business loan as well. Nevertheless, NBFC business loans are offered at less stringent terms and conditions and minimal documentation. The prospective buyer has to submit PNL statements, bank statements, ITR, and PAN. It is worth mentioning that the borrower should check the terms and cost of the loan. He can consider APR instead of just interest rate as it consists of all the cost associated with the business loan.
Focus on Credit History
It is a vital decision making factor! Credit history of the borrower is also a crucial aspect that is taken into consideration by the lenders while processing the loan application. The report helps in determining if the borrower would be able to repay the loan in a disciplined fashion. The applicant should check his CIBIL score and ascertain that it is more than the one required by the borrower. If it is below the required threshold, the business owner should work towards improving it before applying for a loan.
In the end, one can say the above rules will help the budding entrepreneurs to take their business to new heights and expand it by availing the right type of loan for business.