Anyone can apply for a secured Business loan. Starting or expanding a business often requires some financial assistance in the form of loan or equity. The most common way to secure the necessary funds is by applying for a Business Loan from a Bank or a Non-Banking Finance Company(NBFC).
However, applying for a business loan can be a complex process, and requires proper planning and decision making. Therefore, any wrong decision can lead to rejection of loan application or loan on unfavourable terms and conditions.
This article is to help the prospective borrower to abide on some important Do’s and Don’ts when applying for a Business Loan as given below:
The Do’s
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- Do analyze your Business requirements: Before looking for a business loan, you have to make sure you have a clear understanding of why you need it. What is your objective for taking a loan? Are you looking to expand your business, manage operational expenses, or purchase new equipment/machine? If you know your needs, it will help you choose the right type of loan for your requirements.
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- Do prepare a Business Plan: Usually the lenders would want to know your plans before lending. You should have a detailed plan for the use of the borrowed funds and its effect on the success of your business. Therefore, create a detailed business plan that outlines your goals, market analysis, financial projections, and repayment strategies before applying for a business loan.
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- Do check your Credit score: Credit scores signifies our financial credibility. A strong credit score can greatly impact your loan application. Therefore, you have to ensure that your credit score reports are accurately updated, and also take the necessary steps to improve your score if its not satisfactory.
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- Do research the lenders: There are different types of lenders in the market, ad not all lenders are same. Some of them may specialize in certain types of loans or industries. So, you have to research about various lenders, including Banks, NBFCs, online lenders, and other lenders and find the one that best suits your business needs.
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- Do prepare the Financial documents: Mostly all lenders would want to review your financial history, income statements and bank transactions. Therefore, you need to be prepare and be ready with documents such as Balance Sheets, Profit and Loss statements, Income Tax Returns, Bank statements, and Cash Flow projections. The chance of your application being approved is greater if the documents are more organized and in detail.
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- Do have Collateral ready: For Secured business loans, lenders always require some collateral to secure the loan. This can be your business property, machinery or even personal assets. As a borrower, you ought to be ready with all the information about the collateral that you can offer to the lender.
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- Do be honest and transparent: Honesty is crucial when applying for a business loan. Be transparent about your business’s financial situation, including any existing debt. Lying or hiding information can lead to loan rejection and potential legal consequences.
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- Do understand the loan terms: Before applying for a business loan, you have to read all the terms and conditions of the loan carefully. Pay special attention to the interest rate, repayment schedule, and any fees associated with the loan. You can also seek clarification from the lender if you have any other doubts.
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- Do survey of the lenders: Avoid going for the first loan offer that you receive in the market. You need to do some survey about the various loans available and do a proper comparison among the different loan options available. Different lenders may offer different interest rates, terms, and fees, so it’s essential to find the most favourable deal for your business.
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- Do keep your finances separate: It’s very important to maintain a clear separation between your personal and business finances. You need to create a separate business bank account to create a strong financial credibility for your business.
The Dont’s
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- Don’t apply without a purpose: Avoid applying for a business loan without a clear purpose or a plan that can result in unnecessary debt burden and financial stress. You have make sure that you have a valid reason for taking out a loan.
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- Don’t ignore your Credit score: A poor credit score can result in loan rejection or high-interest rates. Don’t apply for a loan without checking and addressing any credit issues beforehand.
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- Don’t Rush the Application: Loan application should not be done in a hurry. Always give enough time to read and complete the loan application accurately and thoroughly. Going through the process in a hurry can lead to mistakes or omissions that can affect your chances of loan approval.
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- Don’t Over-borrow: Avoid borrowing more than your business requirements. Over-borrowing can put an undue strain on your your finances and make the loan repayment difficult.
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- Don’t neglect your Business Plan: A strong business plan is a must. Neglecting this important document can give a negative signal to lenders that you are not fully prepared to manage your business or repay the loan.
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- Don’t ignore alternatives: Before going for a business loan, you have to explore other funding options such as grants, equity investors, crowdfunding or personal finance. Sometimes, these alternatives may prove to be a better than pure debt altogether.
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- Don’t skip Due Diligence: Avoid dealing with lenders who have a negative history of lending through unethical practices. You have to go through online reviews and refer other borrower’s opinion for checking a lender’s reputation.
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- Don’t make any financial changes: Avoid making any significant financial changes right before or during the loan application process like large purchases, new loan, or sudden decrease in the profit. These may be seen as red flags by the lenders.
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- Don’t apply for Multiple Loans: Enquiring or applying for multiple loans at the same time can harm your credit score and history. This may make you appear very desperate to lenders. It’s best to approach one lender at a time.
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- Don’t miss repayments: If you have an existing loans, see that you don’t miss any repayments. Your consistent, on-time repayments of principal and interest of your existing loan will demonstrate your financial responsibility to potential lenders.
Thus from the above article its clear that, deciding to apply for a business loan is an important step in the growth and success of your business. By following the above do’s and avoiding the don’ts, we can increase our chances of getting the business loan we need on our favourable terms.
But we should also remember, that each lender is different, and the approval process can also vary, so being prepared and informed is necessary.
Therefore, taking the time to make informed decisions and creating a strong financial foundation will benefit our business in the long run.
SHREYASS FINANCE, being associated
with multiple Banks, NBFCs and Private Financers offers all types of Business
Loans on Unsecured/Secured basis, Term Loans, Cash Credit/Overdraft facilities
PAN India. Interested persons can call on 9967803324 for further details.