Setting up a business is a one-time thing but ensuring that business grows and always runs smoothly despite several hurdles is a challenging lifelong task. But this doesn’t mean it’s always a bumpy road, you get to taste the rewards of your efforts too. When you run a business, you are the king of your decisions. As much as this bestows you with the freedom to do things your way, you’re equally burdened with the responsibility of managing several pertinent tasks, for say marketing your business, being a salesman, and arranging for finance at regular intervals.
In the early stage of business, the owner can avail seed funding to bring the business to the floor but after a certain time, the business’ revenue and owner’s fund sources will slack off, thereby pushing the owner to divert to seeking funds from external sources to keep business alive and grow.
Much to the owners’ relief, there are multiple external market financing options from where they can easily avail the funds at market rates. However, one thing which needs to be taken into consideration is that some sources may require them to share their ownership. But this may not be a likable option for the owners who dedicated a big portion of their life and savings to the business. If that’s the case with you, then you should go for debt-related financing options or apply for business loan.
What is a business loan and how can you apply for it?
A business loan is a debt-type of financing option wherein the lender, mostly banks, lends you the amount at the market rate of interest after considering your credit history and credit score as your business loan eligibility.
However, in exchange for making secured funds available to you, banks may demand collateral for security. This option, if not the most popular, is the most convenient and conventional source of financing. But with the advancement in businesses and technologies over years, there are many institutions in the market these days that offer unsecured loans to the owners. This includes NBFC and several online lending firms.
These online lenders have a fair advantage over the regular banks as the borrowing process on these online lending platforms is quite simple and comprehensible. The business owners are required to visit the app or website to apply for business loan. If the owners’ eligibility and profile are congruent to the requirements, then loan application and disbursement are done in a few days.
However, before you apply for the loan, there are a few things that should be considered:
- The loan amount shouldn’t be minimal or far extreme: Requesting a lower or higher than required loan amount can prove to be the worst decision. Therefore, you must calculate the right amount. Albeit calculating the correct loan amount is a complicated part, it is suggested that you should ask for a loan amount that is a little higher than your required sum since the lending companies tend to usually lend half of the requested amount.
- Learn thoroughly about the loan scheme: Each financial institution has its design of loan schemes differing from one another. Therefore, before finalizing any loan scheme, go through the details such as loan amount, rate of interest charged, loan conditions, etc.
Your Do’s and Don’ts while applying for a business loan
Each financial institution has its own rules and procedures which are very rigid and stringent, therefore you must consider them to avoid your Business loan rejection. The following is the list of dos and don’ts, the owners should keep in mind to make a business loan application successfully:
- Lookup for credit score: The business owner needs to check his credit score before making a loan application. A credit score of 700 and above is often taken as an ideal score by many lenders.
- Gather the necessary documents: Many lenders consider the financial, accounting and banking documents of the owners to assess their business loaneligibilityand their ability to repay and make interest payments on time.
- Assess the loan offers: Before making up mind any loan offer, it is recommended that the owners assess, and research other loan offers in the market.
- Making loan applications with different lenders: If the business owners’ fund portfolio consists of several loan applications from different lenders, then this can reflect their urgency and desperation for money which can impact their credit score negatively.
- Repayment delays: Not being committed to making interest payments and principal repayment on time is a sign of the owners’ financial instability and indiscipline and makes them liable for the penalties.
- Borrowing a greater sum than required: Miscalculation of the loan amount or intentionally asking for a higher amount than what is required for the business can put an unnecessary interest payment burden on the owners.