Today, finding capital for the proper growth of the business is a biggest challenge. Banks/ NBFC’s and other financial institutions are coming up with advanced technology to meet the needs of acquiring funds for the business owners. The decision to borrow funds for your business and to choose the right lender is an important decision. There are many factors that have to be considered before you finalize the finance amount and the financer.
Lot of options for financing is available in the market. You should weigh the application process, fees, interest rates and special requirements of the lender because your present choice will impact the future of your business. The following points will help you to evaluate the available options and navigate your financing journey.
Find out why you need a loan?
This should be the first quest that you should ask to yourself (even the lender will ask you) while applying for a Business Loan is: Why? If it not a startup business then you may need funds to cover different purposes, other may have different or a specific need such as to buy an equipment or machinery. The reason behind your borrowing will decide the lender and the type of loan you need. So, take some time, explore and then decide why you need funds before you move step ahead.
Reasons to borrow a business loan could be:
- Starting a business
- Buying a business
- Working capital for day-to-day expense
- To cover gaps of cash flow
- Grow your business
- Emergency spending
- Finance equipment
- Debt refinance
Once you are done with finding the right reason to borrow, your next step is to move ahead and enter the process of borrowing. The following steps will guide and let you know if you are on a right track or not.
Check Your Credit Score
Credit score is the key to get any loan. A credit score reflects your capability to handle the debts or loans. With a good credit score of 700 and above you will find it very easy to approach the Bank/ NBFC and negotiate on the terms and conditions. Though, there are sites available on internet to check your credit score, but there are very few who let you check your credit score for free. The portal of Mudra Home allows you to check your credit score for free after every 3 months.
Check Your Business Loan Eligibility
Eligibility refers to your borrowing capacity. Your borrowing capacity is calculated by considering your income and your expense ratio. In simple terms, eligibility is to be assured that you are left with sufficient funds to meet your regular expenses after paying your monthly EMI’s. A loan eligibility criterion differs from one lender to another but there are few basic set of information which is required by every lender. Mudra Home allows you to check your eligibility by proving some basic information about the individual and its business.
Documentation plays a crucial role to put you in a safe circle of borrowing. Authentic and appropriate documents create a clear picture in lender’s mind that in turn leads you towards a positive response from their side. The basic KYC’s and financial documents such as identity proof, address proof, financial statements, ITR is required by every Bank/ NBFC.
A loan application is a first document given by the borrower to the Bank/ NBFC stating the basic personal and essential financial information that creates a base for the lender to decide to lend or not. Along with the application form, to borrow a business loan, the borrower has to provide a detailed business plan that includes the present and projected income statement, balance sheet and the cash flow statement. The application form also states the purpose, amount, means of repayment and collateral offered. A loan application is neither a pledge by the applicant nor the commitment by the lender to grant the loan.
Review Terms & Conditions and Accept
This is the final step before you get the final disbursement of the loan amount in your account. Here it is quite important for you to discuss and understand every term defined in the agreement. Often the borrower does not pay complete attention to the loan agreement and sign it which in turn further leads the borrower to face difficult situations in future.
You may find it difficult to understand and take the first step, but to move ahead you need to be sure and take your decisions on your own else others may start taking decisions on your behalf and this will impact your life in serious manner. We cannot fix the upcoming and unpredictable situations but we can take our decisions wisely. Borrowing for the growth perspective is always beneficial for the business as well as the individual unless you utilize the borrowed amount in some other awful event and defaulting is definitely not. Borrow a loan and take a deep look at your credit score, credit report and eligibility and remind yourself that this is just a start and not the destiny.