A business loan can be very helpful for a business facing a cash crunch. It can be used for a number of purposes, from buying an updated version of the machinery to increasing the working capital. In this blog, we shall discuss the 7 loan for business considerations that the borrower must make before applying for a business loan.
When you decide to leave the confines of your job and own a business, your responsibilities increase significantly. You handle multiple tasks all alone ensuring that the business is on the path to success. You work for extended hours and travel great distances just to ensure that the business does not face any hindrance and stays on the path to growth.
Said that, at the initial stage of the business, you spend all your savings on the business to meet all its monetary requirements. However, with time, your funds dry up and you look forward to additional sources of funds for business. This is where a business loan comes into the picture.
A loan for business is the best option here since it can provide you with additional funds without affecting your cash cycle. Let us first understand what a business loan is.
What is a Business Loan?
Also Read: How To Get A Business Loan?
A loan for business can be described as a credit facility extended by a bank or financial institute for small business owners. The loans are meant for investment in the business only and are basically of two types- unsecured business loan and secured business loan.
Unsecured Business Loan
Also known as a collateral-free business loan, unsecured loan for a business is offered without security. The borrower is not required to provide any type of security to back the loan. This type of loan is very beneficial for small business owners who cannot provide any collateral for the loan. The secured loans are usually offered by NBFCs and online lending institutions.
Secured Business Loan
Collateral business loan or secured business loans are offered with collateral. The borrower is required to offer collateral in terms of an asset to the lender to secure the business loan. The secured loan for business are usually offered by the banks.
Small Business Loan Considerations
Firstly, ensure that your CIBIL score matches the minimum CIBIL score for small business loans set by the lender you are applying with. A CIBIL score is an important business loan eligibility. This business loan requirement differs from one lender to another, therefore, it is important that ensure that your CIBIL score matches the one set by the lender you are applying to. In case your CIBIL score is below the required threshold, first work on improving CIBIL score.
Do not apply for loan to multiple lenders. This is an important consideration, the number of times you apply for a loan for business in a short period of time affects your CIBIL score. It brings your CIBIL score down since it reflects your credit hungry behavior.
Before applying for a loan for business, prepare a detailed project report of your business along with all the side documents to support it. This reflects seriousness on your side.
In case you are already running on any loan, be it a home loan or a car loan or an education loan, repay them on time. This will provide a good repayment report that most of the lenders want.
Ensure that no wrong information is entered in your track record that negatively affects your CIBIL score. Any false instances of cheque bouncing or any other case for that matter should be rectified immediately.
Read the agreement carefully before signing on the dotted line. There may be a clause that might prove detrimental to your interest. So, do not rush into signing the agreement and take your time to read it carefully.
Now, this is an important point to consider. Never apply for an amount that surpasses your requirements. Remember, it is a borrowed money that comes with the interest expenses. There is no use of borrowing money and just keeping it in the bank account.
Applying for a loan for business is a decision that must be taken wisely. And now that you know 7 important considerations to make before applying for a loan, you can make a sound decision.
ZipLoan is an RBI registered NBFC that offers SME and MSME loans at competitive interest rates. We offer business loan application online to make it easy for the borrower to apply for a loan from the comfort of his house. Also, our business loan eligibility is very easy to meet and we do not have any hidden charges.