Business loans have become the go-to credit instruments in the market. Financing your business is one of the most critical concerns while managing your business. You should never take the credit option lightly for your business. Detailed research is required for anyone to procure the funds quickly and apply them to the business.
Let us take a look at what are the factors and the questions that you need to ask before taking a business loan from your lender. Some of the important questions are covered in this article.
Do you need a Business Loan?
This is the first and non-arguably the most important question that should come to the mind of a business owner. The need for debt for a business should not be just for the sake of borrowing it. The debt that is borrowed should be adding value to your business and also satisfy the objective for which it is borrowed. Before borrowing or taking a business loan, all the options that are possible should be explored by the business owner and only then should you turn to debt as an option.
What is the amount of loan that you need?
For any business, strategic planning and financial planning go hand in hand. Thus, it is important to assess the quantum of loans that you need. Generally, business tools and writing down a business plan give an answer to this question. This question is critical because the repayment schedule is decided by you before you apply for the loan. The tenure, rate of interest and other factors affect the repayment of the loan. Thus, these factors are to be considered before deciding on the loan amount.
Which type of loan is suitable and why?
The credit market has diversified into a lot of instruments rather than loans available only from banks or financial institutions. Typically, any business owner might think of going to a bank for borrowing. But, nowadays credit lines, online loan lenders or instant loans are also available. These are cheaper loans and can be available easily without any hassles or documentation processes. You can also opt for credit cards if you need funds on regular basis and you can pay the credit card bills every month. This will save interest and other costs that occur when a loan is taken.
How Quickly do you need the Funds?
When applying for a loan through a bank or any NBFC, the turnover time of funds is quite a lot. So, you need to evaluate your needs and also the time in which you need the funds. If your needs are pressing, then you need to find sources that can give you funds easily and without any documentation or other hassles. The online loans that are available in the market, generally get disbursed by the lenders in a day or so and thus are very effective if you need funds for urgent demands.
Do I have an existing Liability?
For business owners, if you have an existing liability, it is difficult to avail of a loan from any bank or any NBFC. Therefore, you should check before you apply for any loan. Business loans will act as an advantage only if you plan to use them as per the business plan. So the effectiveness of the loan depends upon the use of the loan by the borrower in the case of businesses. One should be careful while opting for a loan in case there is existing liability for the borrower.
What is my Business Credit Score?
Your chances of getting a loan depend upon your credit score. For a business, the credit score is of utmost importance. This factor has a lot of weightage for getting any source of credit from the market. Before applying for any credit, it is advisable that you check your credit report and if any inaccuracies are found, you should always correct them.
What is the cost of the Loan?
Every business loan lender likes to show his/her products very differently. Some might show the interest rate and neglect the APR, on the other hand, some might show the APR of the loan. In this case, you need to assess the true cost of borrowing the loan. You need to be aware of all the costs that are associated with the loan from application to the full repayment. The costs include a lot of hidden costs like processing fees, prepayment penalties etc. One should be aware of all these charges.
Conclusion
These are some of the most basic questions that need to be addressed before taking a business loan from any lender. If you feel that you have the answers to these questions and they make a valid reason for you to take a loan, then you should go ahead and finance your business without any hesitation.
FAQS Top Questions to ask before taking a Business Loan
1:What should I know before taking a business loan?
The costs associated and the terms of repayment are the two most important factors that need to be assessed before taking out any business loan.
2: What are the factors that lenders consider while giving a business loan?
Lenders will generally evaluate the time that you have been in business, the credit scores, collateral and the industry that you are doing business in. These factors are evaluated by the lenders primarily.
3: How do I prepare for a business loan?
The documents and the related business and project reports should be maintained. The credit report should be kept handy for the lender to evaluate. The repayment sources should be mentioned clearly.