5 Tips to Consider While Applying for A Business Loan

Micro, Small and Medium Enterprises (MSME) has seen considerable growth in India in the past few years. According to a recent report, approximately 75 million MSMEs contribute to one-third of the country’s GDP. They are also responsible for 45% of the entire manufacturing output of the country. The easy availability of business financing has accelerated the growth of this sector. 

However, there are certain factors that entrepreneurs need to consider while they intend to apply for business loan. Equipped with adequate knowledge, they can ensure seamless business activities as well as meet various business obligations efficiently. 

Discussed below are five essential tips that business owners need to consider while applying for a business loan.   

1. Compare the interest rate

Different financial institutions offer different interest rates. Prospective borrowers must first choose a number of financial institutions and then minimise their search by carefully analysing the lender’s various charges. 

While borrowers only stress on the interest rate, there are other charges that they need to consider, such as processing fee, prepayment charges, and foreclosure charges. Therefore, business personswho are willing to apply for business loan must check these charges diligently to avoid any future discrepancy in the total cost of the loan payment.

2. Consider the loan tenor 

Loan tenor is another important factor that an individual needs to consider while applying for a business loan, be it an online business loan or startup business loan. The gap between short-term and long-term business loans not only concerns a gap of a few years but also affects the total cost of borrowing. 

If a borrower is willing to apply for a business loan with a long tenor, inevitably the borrower will have to pay for a long time. The EMI for long-term borrowing is low compared to short-term borrowing. But borrowers need to pay interest for a long time which will increase the total cost of borrowing.

To be precise, the longer the loan tenor, the higher the total cost of borrowing; the shorter the loan tenor, the lower the total cost of borrowing. Therefore, borrowers must select loan tenor as per their repaying capacity. 

3. Identify your business needs

Business loans can be availed for various purposes. Businesspersons can take an online business loan to expand their business or purchase machinery, inventory, hire more people, pay salary etc. Therefore, before applying for a business loan, you must identify how much working capital your business needs and then select the loan amount and type accordingly.

Considering all the business requirements, borrowers must select between secured and unsecured business loan while applying for the same. As secured business loans demand collateral, borrowers lacking the same can opt for unsecured business financing for a quick solution. 

In this regard, borrowers can take unsecured business loan up to Rs.45 lakh from a reputed financial institution like Bajaj Finserv. This financial institution offers several consumer-friendly features like Flexi-loan facility, online account access etc.

Moreover, to ensure hassle-free and quick financing, this financial institution extends pre-approved offers. Borrowers can enjoy such offers on personal loans, credit card loans, business loans and several others. You can check your pre-approved offer by entering contact details and other basic information. 

4. Know your CIBIL score

CIBIL score plays a crucial role in determining how much loan amount one will get and how smoothly it proceeds. Higher the CIBIL score, the better the chances to get a business loan. 

When borrowers apply for business loan, financial institutions conduct a hard enquiry. Multiple hard enquiries or rejection of business loans can affect borrower’s credit score immensely. Resultantly, business owners must have a healthy credit score as these business credit reports matter when applying for a business loan. 

5. Learn about the eligibility parameters

While applying for an online business loan, borrowers must know all the eligibility parameters. Though different financial institutions have different eligibility criteria, lenders often check the business vintage, age of the applicant, etc. 

Also, depending on the loan amount and loan type, lenders often ask for various financial documents such as IT return files, bank statements, balance sheets etc. Therefore, business persons first learn about these eligibility parameters as well as prepare all the required documents before applying for a business loan. Before you apply for business loan, consider all the five essential tips discussed above and select the one that best suits your business.