A small business loan comes in handy when you want to hire people, increase inventory to produce more earnings, to expand the business’s brand, etc. But, before taking a small business loan, you should be ready. You should ask yourself questions before you take out a small business loan.
Here are 7 such important questions To Ask Yourself Before Taking a Small Business Loan
Do I really Need The Loan?
Loans are valuable funding options, but taking loans is not always required. You could use the existing cash flow to finance your business. Having too much cash in your company could also tempt you to make bad decisions. Other forms of funding are also available. For instance, an angel investor may be willing to fund you directly. Your business may qualify for special grants or your business partner may fund you with capital.
How Does Credit History Look?
Make sure that your personal credit history and credit score are good. Remove all discrepancies in your credit report. Clear the payment dues and don’t apply for too much credit. Ensure that your business records are clean and accurate. Time your application in such a way that all these things are done and your credit profile looks good. You will get the best possible interest rates, get the loan amount you desire, and also get the best possible loan terms this way.
Am I eligible for the loan?
Before applying for the loan, check whether you satisfy all the qualifying terms set by the lender. In this way, you can avoid the probability of loan application rejection. Also, you can get the best possible interest rates and loan terms. Some of the common eligibility criteria set by leading financial institutions are:
- Age Range of 26 to 66 years.
- They must have a business continuity of 3 years
- IT returns relating to business for at least 2 years.
- Must be an Indian citizen.
Documents required:
- IT returns for the last 2 years
- Age proof documents
- residence proofs
- Bank statements for the last 6 months
- P&L statement
- Balance sheet for the last 2 years
- Passport-size photograph
Is The Lender Suitable?
The lending industry is highly competitive, and there are hundreds of lenders to fulfill your financing needs. The best lender is usually the one who offers the lowest interest rates and pricing. But, comfort is also another aspect. If you feel that your lender is not responding properly and is not offering solutions tailored to your needs, then you can look for another lender. Because, in the long run, if you have any problems with your loan, then you will need a lender who will be available and helpful.
Also Read: How Do I Qualify For A Business Loan?
How Much Funds Do I Need?
This is one of the frequently asked questions when procuring any kind of loan. Acquiring a lot of funds at a time is not a solution. There are multiple costs associated with funding that needs to be carefully considered. If the business loan drives considerable returns on the investments and adds value to the enterprise, this is the best way to determine the fund you need. However, it is best to avoid over-borrowing and borrow the amount required to fulfill your business needs.
How to Get The Business Loans Approved?
The application process for small business loans is simple with reputed lenders. If you have been in the business for a longer time and are making considerable profits, then it is easy to get quick approval without any hassle. Further having a credit score of 750+ and a good repayment history will help in hassle free business loan approval.
How Much EMI Can I Afford To Pay?
If the borrowed amount is considerable, then the EMI will also be higher. Also, if your loan tenure is short, the EMIs will be affordable but the interest component will be higher and vice versa. If in a certain month, your business does not do well and fails to earn a certain percentage, then it will be difficult to pay EMIs in that month. That is why, you should use a business loan EMI calculator to determine the EMIs and the interest outgoing to be paid against the borrowed amount. This will help in avoiding any financial strain in the long run.
Conclusion
Taking a small business loan is an essential part of any business. But, before you take one, you should do a lot of research and shop around. This will help in ensuring that you leverage the small business loan to the maximum.
FAQS 7 important questionTo Ask Yourself Before Taking a Small Business Loan
1:What questions should I ask the potential lender before taking out a business loan?
The questions you can ask the potential lender are: Do you lend to businesses in my industry? What are the interest rates and the total cost? What will be the payment schedule? When will the first payment be due? How do I make the periodic payments? How long will the loan application process take? Can I speak to a few current and past customers?
2:What is the process of applying for a small business loan?
Go to the lender’s website. Input the name and phone number to verify the OTP. Submit the basic and personal details. Upload the bank statements for the last 6months. Post submitting the form, any one of the loan representatives will reach out to discuss the further loan proceedings.
3:Do Banks lend to startups?
Banks are very likely to offer funding to startups which can show that they are sure of repaying the loan. Providing collateral and presenting strong monthly finances can also improve your chances of getting sanctioned for a loan from a startup.
4:Who is eligible for a business loan?
Those businesses that have been making profit for the previous 2 years. The business should have a minimum annual income (ITR) of Rs. 1.5 Lakhs per annum. The applicant should be at least 21 years at the time of loan application and must not be more than 65 years at the time of loan maturity.