Business loans, personal loans and disbursements have grown at a rapid rate after the demonetization process. Today, several banks including NBFC are ready to offer you loans at a relaxed rate. Some banks even claim to disburse the business loans within seconds of receiving the loan application.
To put it simply, taking credit has become easy, but there are a few things that a businessman needs to consider before you apply for business loan.
What to check when you apply for a business loan
- Determine what kind of loan your business require- There are several kinds of loans available that can be used to overcome a shortage of funds like
- Working capital loan: This kind of loan is taken when the funds are not sufficient enough to meet day-to-day expenses.
- Term loan: These are standard loans that can be used to ask credit for a specific purpose.
- Equipment financing: This kind of loan is taken by manufacturing businesses where the equipment are costly but are important for day to day operations.
- Invoice financing and discounting: This kind of loan is used to raise capital.
- Pick the lender with great caution– Once you have determined the type of business loan, it is important to pick a bank lender with great care. It may appear convenient to select the bank with which you already have a dealing.
But this way, you may miss out on some good deals. So, it is important to research about the lender and shop around for the lowest rate.
- Check the additional charges levied by the banks– The business loans come with processing charges, but some banks add up more charges into it. Hence, before you apply for business loan, it is important to check the charges to avoid any concern later.
- Calculate the interest rate – Once you have zeroed in on the lender, it’s important to calculate the interest rate at which it is offering the loan.
Some banks use the method of a flat rate for offering the loans, which may look very attractive in the beginning. But keep in mind, since you are repaying the loan with EMI, the interest should be calculated on reducing balance. The flat rate will not be able to tell you the exact cost of the loan.
- Credit Score – Credit Score determines your eligibility to take the loans. If your credit score is ranking low, it means the banks will charge you with a higher rate of interest due to higher risk exposure. Hence, steps should be taken to maintain a good credit score.
The best way to improve the credit score is to determine what is impacting it, reduce the use of credit card, avoid making delayed payments, make a healthy blend of secured and unsecured loans in your basket, debt consolidation, etc.
- Don’t approach too many bank lenders– Shopping around for the best business loan doesn’t mean that you have to approach a large number of lenders. It could prove to be counterproductive. Too many applications to different banks can actually reduce your credit score.
With these tips, you can be sure to take the right steps when you apply for a business loan.