Any loan made to cover business-related expenses is a business loan. A small to medium-sized enterprise (SME), a micro, small, and medium-sized organization (MSME), or the biggest business in existence may be the borrower who applies for a business loan. The overarching rule in this case is that they must only utilize the money they get from the company loan for business-related expenses. Lenders like banks or non-banking financial corporations (NBFCs) may provide you a business loan. But before you submit an application for a business loan, there are a few crucial questions you need to ask the lender, your financial advisor, and yourself. These inquiries concerning business loans will assist you in comprehending the specifics of the application procedure, qualifications, and other conditions of a business loan.
Q1. Why do I need a business loan?
One of the first offline or online business loan tips is to ask yourself why you need the business loan in the first place? This is also one of the first questions about business loans that lenders will ask you. And if you do not have a clear answer, it might fare badly on your loan application. To find the exact reasons you need the business loan, take a pen and paper or open your laptop to note your business goals. Write your aims and visions for the short and long-term, your desired turnover and revenue, and the steps you will take for achieving those business goals. Be honest about your pending debts and overhead costs as well. Generally, the business-related purposes lenders provide a business loan for include:
Managing operational costs
Hiring skilled staff
Training new staff
Boosting working capital
Purchasing new machinery
Expanding business locations
Expanding business inventory
Maintaining/ repairing equipment, machinery, software, and other assets
Improving/ renovating business infrastructure
Adopting new marketing techniques
Implementing new sales strategies
Diversifying product/ service portfolio
Shifting your business online
Consolidating high-interest debts
Capitalizing on new trends/ business opportunities
Q2. What type of business loan can I take?
One of the second online business loan tips is to ask yourself and then the lender about what type of business loan you can take. Depending on your budget, assets, annual revenue, financial performance, and years in business, you can apply for a secured business loan or an unsecured business loan. Secured loans are a better option than unsecured loans as the interest rate payable in secured loans is lesser than those in unsecured loans. Because the lender has an asset to rely on in case you default in the repayment of the business loan, secured loans have lesser interest rates and longer repayment tenures. Unsecured loans might have higher interest rates, but they are still a great option for securing necessary business funds within a short time. Generally, new businesses or start-ups are not eligible to apply for a business loan, as they do not have any previous records or markers of financial performance. It might take a minimum of 2-3 years for a business to even get considered for a business loan application. Remember to check the various business loan options offered by lenders to find one that gives you the best benefits at competitive interest rates.
Q3. What is the true cost of the business loan I take?
Every business loan has a true and total cost. The true and total cost of a business loan is the entire cumulative cost of the principal amount of the loan, the interest rate payable, and other charges levied by the lender. For instance, let’s say the principal amount of an unsecured business loan is ₹ 30,00,000, and the interest rate payable is between 10% and 26% per annum. Moreover, there are additional costs you have to pay like the processing fees, application fees, legal fees, and so on. The percentage of the fees payable will vary from lender to lender. Other charges payable might include a prepayment/ foreclosure charge and a late payment charge. A prepayment/ foreclosure charge is when you want to pay off your loan amount before the tenure ends. A late payment charge, as the name suggests, is a charge levied for missing the EMI loan repayment every month. Ask your lender about every charge payable to ascertain the true cost of the business loan and ensure there are no hidden charges. Transparency and trust are the cornerstones of a healthy financial relationship with your lender.
Q4. What eligibility criteria do I need to fulfil for a business loan?
This is one of the questions about business loans you must ask your lender before applying. The eligibility criteria for a business loan will vary from lender to lender. But some standard criteria apply in general to business loan applicants. To apply for a business loan, the borrower must:
Be of a specific age (usually at least 21 and up to 60-65 years of age)
Have a vintage work experience for a minimum of 3 years
Meet a specific annual turnover with their business (for example, Rs 20,00,000 in a year)
The borrower will also have to submit relevant documents for the lender to verify their eligibility and repayment capacity. The documents include:
KYC documents
Company PAN card
Individual PAN card
Aadhar card
Electricity bills
Rent agreement
Passport
Business address proof like utility bills (gas/ electricity/ rent agreement)
Financial documents likebank account statements, income tax returns, balance sheets
Consult your lender’s authorized agent or personal financial advisor for correct details on business-related documents and online business loan tips. You can also visit the lender’s website and check their list of documents and eligibility criteria in their business loan section.
Q5. Will the lender check my credit score during the business loan application?
This is one of the most crucial questions about business loans. One of the first online business loan tips is to check if you have the required credit score. A credit score is a 3-digit score that indicates your creditworthiness or ability to clear your payments on time. In India, credit scores are also known as CIBIL scores because the authority that rates an individual’s creditworthiness is called CIBIL or the Credit Information Bureau (India) Ltd. Lenders expect a minimum credit score of 700 or at least 650 to process your business loan application. The higher the credit score, the better it is for your loan application, and the lower the interest rates. So, if you find that you have a low credit score, you should take immediate steps to increase it like making purchases but paying the bills on time, clearing pending loans, and not closing the accounts of your previous debt history. You can check your CIBIL score yourself. Or the lender might check it for you by conducting a soft enquiry. A soft enquiry is when the lender checks your personal credit history without causing any negative impact on your credit report. Some lenders might undertake a hard enquiry, which is a detailed, thorough review of your credit report, which can have a harmful impact. So, ask your lender about the type of enquiry they will make before you apply for the business loan.
Before You Get a Business Loan, Ask Your Potential Lender:
Q1: What are the interest rates and the total cost?
The interest rates and total cost of a Business Loan depend on various factors, such as:
Credit Score – A credit score of 750 and above is considered excellent by lenders and can significantly improve your chances of getting a Business Loan at low-interest rates and better loan terms.
Loan Repayment Tenure – The loan repayment tenure of your Business Loan can also affect the interest rate and other loan costs. A longer loan tenure can come with lower interest rates while a shorter loan tenure can come with relatively high interest rates.
Q2: What will my payment schedule be?
Your payment schedule or EMIs of your Business Loan will depend on the loan amount and the repayment tenure that you have selected for your loan. You can use a Business Loan EMI calculator to determine the amount that you’ll have to repay towards your loan. The loan repayment tenure can vary between different lenders, with some NBFCs like Credit success offering Business Loans with a repayment period of up to 36 months.
Q3: When will my first payment be due?
Loan repayments usually start about a month or 30 days from the date the loan amount is disbursed into your bank account. However, some lenders may deduct a certain amount as repayment post-disbursal. Therefore, it is important to discuss the loan terms and repayments with your lender carefully before getting a Business Loan so you can understand your repayment period better.
Q4: How do I make periodic payments?
Periodic loan payments can be managed according to your repayment schedule through equated monthly instalments or EMIs. The EMI amount remains the same in the case of fixed interest rates, making it easier to repay your loan on time. Hence, it is important to discuss this with your lender so you can manage your finances accordingly.
Q5: How long will the loan application process take?
The loan application process for a Business Loan can vary between different lenders. From application to disbursal, the duration can be anywhere between a few hours to a few days. With Non-Banking Financial Companies like Credit success, you can simply follow the steps mentioned below to apply for a Business Loan online:
Visit Credit success official website and select ‘Business Loan’
Click on ‘Apply Now’; this will redirect you to the loan application form
Enter and upload the required details
Submit the form and await verification and approval
The loan amount will be disbursed into your bank account post successful verification.
To conclude:
Applying for a business loan becomes easy when you know how to ask the right questions about business loans. These offline and online business loan tips will help you navigate the loan procedure – from application to repayment. You can find more relevant information and guidance on business loans at Credit success.
