Five Important Factors You Shouldnt Miss While Applying For Business Loans

Business loans have been a workable option to firms for a long time. You can use these loans for a variety of reasons, such as expansion, to augment the flow of funds, for day-to-day business operations, and so on. There are different types of these loans available in the market, and you can get one for the amounts desired (small or big). Before you opt to take debt, you should analyze whether the loan is really required. There may be some other sources of funds which you should consider.

For example, friends or family may be willing to lend money on congenial terms or with nil interest. You can tap your personal savings to fund your venture or can turn to angel investors instead of traditional lenders. If still, this loan is required, then go for it. Applying for this loan and getting it sanctioned involves a set of carefully evaluated steps. Lenders ascertain whether your business will generate adequate funds to pay the EMI on time. Therefore, a good credit score and sufficient annual turnover are key. From your side, while applying for business loans in 2022, you should never rule out these 5 factors below.

Decide the Loan Amount 

You should carefully analyze how much cash is required to invest for various business functions - sales, expansion, launching a new product line, adopting new market strategies, and so on. This is very important as the lender will definitely interrogate these points. Not determining the exact loan amount will result in a lack or surplus of funds. The former will lead to difficulties in running your business while the latter will mean higher interest rates. Also, ascertaining the correct amount will help you select the lender as the maximum loan sanctioned varies with financial institutions. 

Know the Interest Rates 

You should know about the loan’s interest rates since some lending institutions will charge higher interest rates. You can thus choose the bank or NBFC feasible to you so that you do not strain to repay the loan. 

Here is a quick comparison of the interest rates, upper limits on loan amounts, and repayment periods offered by various banks and NBFCs for business loans 2022. 

Explore Lending Alternatives and Understand the Market Reputation of the Lender

 It is vital to take into account these three important things while you select the lender. 

• Businesses generally opt for conventional lenders, but traditional lenders have stringent eligibility criteria and cumbersome loan application and approval processes. This will result in late disbursement of loan amounts, tediousness, and loss of time. Nowadays, there are several non-traditional lenders who have quick online procedures with less documentation involved. It is easier to opt for such lending institutions to get these loans.
• You should pick a lender that provides flexibility in repayment. Timely repayment is pivotal to maintaining a good credit score. The EMI date is also focal for specific businesses depending on their receipts and payment cycle, salary dates etc. In addition to these, going in for lenders who give prepayment options will enable you to clear your debts ahead of the actual completion of the loan period.  
• It is important for you to comprehend the reputation of the lender. There are reviews online, and although they might not present the exact picture, they are surely enough to assess the integrity of the lender. Going in for lenders with disrepute might endanger your business’s assets and money. 

Know the Eligibility Criteria Before You Apply

Different lenders have different qualification standards for business loans. This is especially crucial for unsecured business loans which evaluate your 

• Employment type
  • Self-employed non-professional
  • Self-employed professional
• Age
• Credit score
• Financial stability
• Annual turnover
• Tenure of the business

It is essential to understand the unique yardsticks set by each lender before you apply for the loan. Otherwise, it will only lead to rejection of the loan application ending finally in the loss of time and energy. Knowledge of the eligibility criteria set by different lenders will help you to choose the best one suited for you. 

Additional Read: Read all about business loan eligibility 

The Time Taken to Credit the Funds

Check and compare the time taken by different lenders for crediting the loan amount. Disbursal times differ with lenders. While some may do it instantly, others may take days, weeks, or even months to credit the cash. You must make sure that it suits your business needs. You may have urgent requirements, and in that case, you should choose a lender who makes the cash available immediately. 

Conclusion

As opposed to the last decade, procuring business loans has become much simpler today as a number of  NBFCs have cropped up to offer loans at terms and conditions convenient to businesses. However, not overlooking these five important factors while applying for business loans in 2022 can increase your chances of getting the loan sanctioned.

FAQS for Important Factors You Shouldn't Miss While Applying for Business Loans in 2022

1) What are some ways in which I can increase my odds of obtaining a business loan?

    Here are some ways in which you can boost your likelihood of getting business loans

• Have your current financial statements in place
• Ensure that your personal and business credit scores are good
• Establish good connections with lenders
• Be ready to risk personal collateral
• Present a detailed and conclusive business plan
• Check current economic conditions
• Improve sales growth and have a good annual turnover
• Before you choose a lender, make sure that you meet all his eligibility expectations

2)  Will your business loan get rejected if you have a poor credit rating?

Yes. It will. It shows that you do not have a good judgment with respect to financial matters. One of the most common grounds for loan rejection is using a high percentage of credit amount. The standard percentage is approximately 30% of the total available credit. 

3) What are the factors that a businessman or entrepreneur should consider before availing a business loan?

Some of the aspects that a business owner should consider are interest rates, lender reputation, repayment conditions,  collateral requirements, amount to be borrowed, type of business loan, loan fees, and loan disbursement time.