There are many type of loans available in the market, each loans signifies a specific need and also comes with pros and cons of availing that loan. Like for example if you want to buy a car there are many lenders in the market who would lend money at different interest rates but imagine this you are paying interest for a depreciating asset and by the time you close the loan you would have paid 50% more than the market value for the availed car. Similarly there are other loans like home loan, personal loan, business loans etc.
A business loan is taken by entrepreneurs for emergency business funds or to complete a specific business task. This type of loan can be availed through various banks and lenders with competitive interest rates. These loans are categorized into two i.e. long term loan and short term loan. If an entrepreneur needs money for business emergencies he/she would go for a short term loan or for a long term loan if he/she has big business plans. The interest rates are almost similar to personal loan interest rates.
Availing a business loan can be tuff as compared to other loans so we will sight you 5 steps to take before applying for a business loan,
Understand the Different Types of Small Business Loans Available
There are a lot of loan options available at the same time there sub categories of business loans which are designed to suit your business needs. You need to understand which loan will suit your business loan and apply for the same; some types of loans are as follows, Small business line of credit, Accounts receivable financing, Working capital loans, Small business term loans, etc. each loan is tailored for different tasks associated to entrepreneurship.
Research the Available Lenders
Once you know which loan suits your need you will have to research on available lenders who entertain such loans. Different lenders have different clause, when it comes to loan disbursements. There are many types of lenders as well who will be happy to bank your cause. There are a lot of online lenders who would easily finance you with just a click, this is ideal for small emergency loans.
View Your Credit and Risk Profile
A credit profile of a business is different than an individual. In the profile of a business there are a lot of factors which will contribute to your credit score, and the credit score will the key factor to determine if you are eligible for a loan. Factors like outstanding loans, cash flow, business assets, your business tenure in the market, investors etc. plays an important role. By considering all these factors the lender will make a call if you are eligible for a loan. You can also get a loan with bad cibil score but the chances are very less as this will be the lender’s call.
Financial Statements Are in Order
If you are planning to go for a bigger long term loan, make sure you have all your financial statements in place. There are several transactions which happen on a daily basis in a business and keeping a track of the same is important. The lender will check your inflow and outflow of money just to consider how much loan they can sanction. If the financial report is prepared by a chartered accountant, you have an upper hand availing a loan faster than expected.
Specify How Much You Want
Every business has different needs and fulfill such needs you need money. When you are applying for a business loan, you will have to specify the purpose of the loan and will have to submit the required quotation or related document. Sometimes the bank may also have a pre-approved loan option for you, but make sure you only take what you want or else you will find yourself surrounded by debts.
Getting a business loan is not that easy as compared to availing a personal loan, but has its pros and flexibility which give entrepreneurs ease to avail it and use it. Do not make the mistake of more loan than what is needed, as it takes years to build a business but can fall in no time at all.