Running a business is one of the most significant challenges for any individual but at the same time is undoubtedly one of the most rewarding experiences for professional satisfaction as well. You are your own boss and get to do things your own way. But at the same time, you have to manage multiple tasks simultaneously, travel extensively, and arrange for the required finance from time to time. During the initial period, you can arrange for the funding to get your business started but after a particular stage, your personal finance sources will dry up and you will be forced to seek the external source of funding to keep your business functions run smoothly.
There are various financing sources available for you in the market, but a few of them require you to give up a part of your ownership. This might not be a welcome situation for you as you have given your blood and sweat to take your business to the place where it is today. In such a case, the most suitable option for you is to apply for a business loan with any of the numerous financial institutions operating in the market who offer different types of MSME loans.
About Business Loans and Where to Apply
Business Loans are one of the most popular funding sources for business owners to meet various business-related financial requirements. There are various types of financial institutions operating in India who offer unsecured business loans for different business-related requirements of the small business owners. In the recent times, one of the most popular lending sources for small business owners has been Online Lending Companies. This has been possible due to the numerous advantages that online lending companies offer to their customers as compared to other financial institutions.
In order to be eligible for an unsecured business loan of up to Rs. 5 Lakhs, your business must have recorded an annual turnover of over Rs. 10 lakhs in the previous year. The repayment tenor for business loans extends up to 24 months and the rate of interest starts from 23% p.a. depending on the lender. The amount borrowed from Advance Funds Network can be used for various requirements, such as the purchase of machinery, land, equipment, working capital requirements, etc. The money thus borrowed should be used for business purpose only.
With the help of technology, the process to apply for an MSME loan with online lending companies has become relatively simple. You can apply online through their website or mobile app conveniently. If your profile meets their requirements, the whole process starting from application to disbursal would be completed within a few working days itself. You only need to provide PDFs of some basic documents to process your application.
Things to do and Not to do while Applying for a Business Loan
Due to the turmoil going on in the banking and finance industry, the financial institutions have become very strict and follow a stringent eligibility criterion while assessing a loan application. They just need a red flag to reject your application, as such it becomes imperative that you follow the below mentioned do’s and don’ts while preparing your business loan application:
Do’s
- Check your Credit Score: You must check your credit score or CIBIL score before moving an application for a business loan. Most lenders want you to have a credit score of 700+ and only thereafter only would they proceed ahead with your application. So, make it a point to check your credit score before you move ahead with the application.
- Documentation: Every lender requires you to submit all your financial, accounting and banking documents along with your application for a business loan. This is required by them to assess your repayment capacity as well as the strength of your business.
- Business Plan: You must prepare a business plan specifying the intended use of the money, how it is going to boost your profits and how do you want to repay the amount through EMIs.
- Research Around: Before finalizing a lender for your business loan requirements, you must do thorough research and only after you have analyzed the various aspects of the loan offer, should you proceed ahead.
- Calculate the APR: Annual Percentage Rate or APR is the total cost of a loan to you in a given year. It is a much better indicator of the total cost of the loan as compared to interest rates and should be the major parameter while you consider different business loan products.
Don’ts
- Apply with Multiple Lenders: Applying with multiple lenders shows a sign of financial desperation on your side and must be avoided as it has a negative impact on your credit score.
- Delay your Repayments: Not making repayments towards business loan installments is considered a sign of financial indiscipline and would not only make you liable to exorbitant penal charges but also affect your credit score negatively.
- Take the First offer you get: It is not necessary that the first offer you will get would be the best. There are numerous lenders in the market, and you must research around thoroughly before finalizing a business loan proposal.
- Borrow more than you need: You should borrow only that much amount which is required, as the money you have taken is a loan which carried significant interest cost. There is no point keeping the money idle while you are paying interest on it.
- Pay upfront fees: Many scamsters are operating in the market these days who will try to fleece you by asking to pay exorbitant charges upfront. A genuine lender never asks you to pay huge costs upfront, so you should not fall into this trap.
Just follow the tips mentioned above and exercise your due diligence to ensure that you get the maximum benefits out of your business loan.
