Getting a business loan

An entrepreneur needs to manage various aspects of the business such as marketing, product development, financing etc which basically makes him a superhero just like Batman. In this article we will try to be Robin and help batman with his financing problem by helping the entrepreneur in getting a business loan.

Getting a Business loan could be the perfect solution for both small and big businesses alike as they provide solutions to a variety of problems such as meeting working capital requirements, paying salaries, purchasing goods etc. Business loans are very flexible and can range from 3 – 5 years.
One of the most important factors while obtaining a business loan is checking the interest rate applicable . Due to rising inflation the reserve bank of India has increased lending rates by 40 base points which makes the EMI of the loans costlier.

Factors that affect business loan interest rate

Collateral involvement

Getting a business loan in today’s competitive market has become easier as financial institutions are providing loans without collateral. But this could increase the interest rate if the institution fells that it could be difficult to recover the amount from the business. Hence if the business requires a low interest rate and it has an asset available it could always put it up for collateral.

Base rate system followed

The repo rate is considered as the base rate while lending by various financial institutions. Hence the recent hike in the rates has increased the amount of EMI that needs to be paid back to the institution while obtaining a business loan.

Business loan against property

A loan against property is a type of business loan that can be availed by keeping a property as collateral and it comes with a low interest rate as the amount of business loan is determined on the value of property

Benefits of getting a business loan against property

Higher loan amount

Since the amount of loan is obtained on the value of property the amount of loan obtained can be high.

Long tenure

Loans are available for a period up to 15 years so the business can pay back loans without hindering their cash flows.

Low interest rate

Since collateral is being provided the risk which the institution needs to beer while providing a loan reduces hence the institution can provide loans at a cheaper interest rate. Read more about business loan interest rate.

Easy to obtain

Collateral makes the loan easy to obtain

Fixed interest rates

It means that you need to pay the same interest amount throughout the period. Hence the EMI amount remains the same

Obtaining business loans without proper business plans or proper documentation or by providing false information can hamper the chances of availing a business loan all together. Hence we have compiled a list of necessary things that we need to keep in mind while getting a business loan.

Factors to keep in mind while of getting a Business Loan

Low credit score

A credit of score of 700 + is preferred by the financial institutions as it shows them that you are credit worthy and the chances that the business will default on the loan payment is very low . Therefore while applying for the loan we need to make sure that the business has not had any defaults while paying back any loans

Poor cash flow

A good cash flow shows the businesses ability to meet short term requirements such a paying back a loan’ EMI .

Lack of necessary documents

To approve business loans, financial institutions require them to mandatorily provide a few business documents. These financial statements allow lenders to look at the overall financial health of the business, based on which they determine the loan amount to approve. The following documents are generally required by the financial institutions for approval of loan

Balance Sheet for two previous years

       Profit and Loss Statement for two previous years

       Income tax return filed

       Cash flow statements

Conclusion:

Getting a business loan is one of the easiest solutions for a business to solve its financing problems as loans are available without collateral. Since collateral is not required the process of getting a loan becomes faster as there is no need for any appraisal of assets. The loans now provided by financial intuitions are very flexible as well. They also provide tax benefits to the firm and also help in improving the credit rating of the business.

By Mr Stew

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