Published on December 3rd, 2017 | by Sunit Nandi0
Seven Important Factors to Consider while taking a Business Loan
India is a land of opportunities where entrepreneurs such as small businesspersons and self-employed professionals can thrive by starting their own businesses or professions. Every day thousands of entrepreneurs start their operations with the fond hope of succeeding in their ventures. Often, these ventures run on borrowed capital by taking business loans from lenders such as financial institutions including banks and NBFCs. Some ventures succeed while others fail. Many entrepreneurs fail in their ventures because of many reasons not taken into account at the time of starting the venture.
In order to help you as an entrepreneur to make a proper assessment of your business before starting the venture and before committing to taking business loans we urge you to consider the seven most important factors as detailed below:
1. Business clarity
You must understand your business thoroughly. You should know what your business is, what products or services you want to sell, how you will produce them, what capital you require, where you will find the capital, who your customers are, how many customers you can acquire, at what price you can sell, who your competitors are and what forecast you can make for the next three or five years. If you don’t bring clarity into your business you will suffer when things go against you.
2. Need for a loan
You need capital to run your business. You also need working capital. If you are an affluent person perhaps you may fund the business from your own capital. If you are short of capital then you need to find other sources. A business loan is an excellent source of funds provided you are sure of your business. You must establish beyond a reasonable doubt that you need the business loan to succeed in your business and that your business will back you to repay the business loan.
3. Business loan terms of different lenders
There hundreds of agencies offering business loans and they will entice you with offers to avail a loan from them. While most agencies offer similar terms and conditions there are some differences. You need to evaluate all of them and go through the fine print in detail before you commit. You should watch out for processing fees, prepayment charges, and penalties for late payment of EMI or defaults, interest on delayed payments, costs associated with loan servicing payable by you and other such hidden costs. You can also check if the lenders offer an online business loan. With this evaluation you can come to a decision as to which lender is good for you.
4. Availability of collateral
Most lenders seek some form of security for the business loan. If loan is for capital equipment then the equipment itself becomes the security. If you are seeking working capital then you may have to offer some collateral as security. You could consider collaterals such as life insurance policies, property, mutual fund investments and other moveable and immovable assets.
5. Updated documentation
You need to update all your business documents. These may include latest ITR, latest balance sheets and P&L statements, cash flow statements, business plans, property documents, and latest tax paid receipts, certificate of business and latest bank statements. Updated documents help to make the business loan application process quicker and smoother.
6. Determine cost of borrowing
Based on your loan requirement you must calculate the cost of borrowing by factoring in all the costs including interest and other charges. When you have this in front of you, you can decide on fine-tuning the terms of your business loan.
7. Repayment strategy
The most difficult part of a business loan is repayment. If you don’t understand your business well then you can run into rough weather with repayments. So, understanding your business and making reliable forecast of your revenues in the future you can plan a repayment strategy. Most lenders offer flexible repayment options and you must exploit them to suit your business objectives which include repayment of the business loan.
We at Tata Capital seek your indulgence in planning your business loan properly. We help you to make a considered decision through many facilities we offer at our branches and online including the business loan calculator.