Business loans have been used by small business owners to take care of urgent financial requirements which can not be met by the regular funds in a business. It may be due to an unexpected expenditure coming up or delay in realisation of payments. But the fact of the matter is that shortage of funds in business is inevitable and so is the requirement of a business loan by a small business owner. But, merely thinking about availing a business loan is not enough; there are a lot of factors that need to be considered before any final decision can be taken. Some of the questions that need contemplation to estimate your business loan requirements include:
- What type of business loan to apply for?
- Where to apply for a business loan?
- What are business loan requirements in terms of the amount?
- Which channel of the application must be chosen?
Therefore, it requires careful consideration on your part, and you need to ponder upon so many factors to be able to make an informed decision. Earlier when the borrowing options were limited, business owners had no other choice but to apply for a business loan with a bank. But now with opening up of the financial services sector, various financial institutions have come up. They offer a wide variety of secured and unsecured business loans, such as machinery loan, working capital loan, and business capital loan as per the requirements of the business owners.
With the entry of new financial institutions, the options enhanced multi-fold for business owners, who were now no longer at the mercy of a bank manager. NBFCs and Private Banks gave the power of choice to business owners who could now freely choose the business loan that met their requirements. With the rising technological progress, the financial services sector evolved further and led to the emergence of online lending companies, which soon became the preferred borrowing option for business owners.
About Online Lending Companies
Online lending companies are specialised NBFCs which conduct their operations entirely through online channels. These companies operate through their website or mobile app, making it convenient for business owners to apply for a business loan. You need not visit any bank or branch endless number of times to avail a business loan, just a few taps on your screen and uploading of a few documents is enough to get the business loan application processed. If your credit profile meets the eligibility requirements of the lender, it will only take a few days to process your application.
To be eligible for an unsecured loan of up to Rs. 5 Lakhs, your business must have registered an annual turnover of Rs. 10 Lakhs in the previous year. For ease of repayment, you can opt for an extended repayment tenor of up to 24 months and can also exercise the option to pre-pay the loan amount without incurring any additional charges. There are different types of loans that you can choose from, such as machinery loan, working capital loan, unsecured business loan, etc. To get a holistic view of your creditworthiness, these companies conduct an independent credit evaluation process to ascertain your eligibility in addition to the CIBIL.
How to determine your Business Loan Requirements?
Ascertaining your business loan requirements is a complicated process but is one which you need to master. You borrow less than what you require, then the entire exercise has been futile, and if you borrow more than what you require, your interest expense is going to be higher. In such a situation, you need to take the following steps to get your requirement right:
- Check your bank statements and cash flow statements thoroughly to understand the pattern of payment receipts. This way, you will be able to understand how long the money in your account is going to last and when can you expect the next payment from customers. Therefore, you need to borrow as much amount, which will suffice this period.
- Calculate all your monthly expenses and then ascertain the time taken by the customers to process your invoice. It is the duration for which you need to arrange working capital. The simple formula would be:
Months taken to clear invoice x monthly expenses = Working Capital Loan Required
- If you are taking a machinery loan, ask the supplier to provide a F.O.R. Invoice to ascertain the total amount that you need to pay to the supplier.
- Take help from your accountant or finance personnel to understand the shortfall of funds you are facing. They have a better understanding of these matters as compared to you.
- In addition to the requirement, you need to ascertain your repayment capacity also. Take help of online business loan calculator tools to ascertain your repayments accurately.
It is therefore very important for you to take some time and ascertain your requirements accurately to make sure that you can maximize the benefits of your business loan.