8 Things You Must Check Before Applying for a Business Loan
After the initial period, there is a need to scale up the business, and you need funds. The best way is to apply for a business loan. The bank is more than ready to give loans to companies that show the capacity to repay the same. Technology has brought loans closer to business people, and it has become easier to check your business loan eligibility online and apply for one. Business loans can be both secured and unsecured.
Things to remember when you take a business loan
The spate of bad loans or NPA’s as the banking sector calls them has made availing business loans a little complicated. There has also been end number of frauds and collusions in the financial industry, making both lenders and borrowers a little apprehensive. It is vital that you prepare your company’s financial reports and documents in a way that you become eligible for a business loan.
1. Your CIBIL score should be robust and should be in sync with the lender’s eligibility criterion. Most lenders ask for 750+, but as it is a business loan, some will take the risk if your business financials and order book is robust.
2. It is never a good idea to apply for the loan with multiple lenders as the hard inquiries generated dent your credit score and credibility by proving you hungry for credit. Do your homework online. Look for the eligibility criteria, play with figures on the online EMI calculator for a business loan, and see what you can repay quickly.
3. If any loans are running at the time, do repay them on time, as lenders will check nit only your present credit score but also your credit history. If there have been late or bounced EMI’s the chances of your getting a loan are slim. Even if you get the loan, it would be at very high interest rates.
4. The lender will require a detailed project report along with all supporting documents to process the application. Do ensure that your projections are reasonable and viable.
5. Try and maintain a healthy balance in your current as well as personal accounts. The credit team will look at specific dates on the statement you have provided to check the strength of your finances. It is generally the balance on the 1st, 5th, 10th, 15th, and 25th of the month that is checked. The account should have no bounced cheques in a year or so.
6. You should take the advice of a Chartered Accountant and a Company Secretary to prepare the detailed project report. The application must be watertight and pass the approval. If a banker rejects your loan, you are unlikely to impress another one.
7. It is imperative that you read the details of the loan agreement thoroughly. Many times things are hidden in the fine print. This is a long term agreement, and all the details must be precise before you sign on the dotted line. The contract should have all the clauses vetted before you close the deal.
8. Last but not least, negotiate with the lender to get the best rates and processing fees. Most higher placed officials have the liberty to negotiate up to .5% in the interest rates. Check for foreclosure charges and negotiate to get that minimized as well.
Always borrow what you need and not more. It will give you peace of mind and a more manageable repayment schedule. The golden rule of business loans is that take what you need to generate revenue, not otherwise. The credit that is used to create income is the one easy to repay. If your repayment schedule is impeccable, the lender will o