In the Indian economy, small businesses constitute 95% of the industrial units and contribute 40% of the total industrial output. Most significantly, these small enterprises contribute 45% of total Indian exports.
To ensure the proper functioning of these establishments, entrepreneurs can back their undertakings with a small business loan. A business loan helps fund business endeavours by ensuring adequate cash flow. It helps expand the horizons of the business and enhance sales.
Top 6 factors to consider while taking a small business loan
Business professionals must consider the following essential factors while taking a small business loan:
Know eligibility norms and documentation
Borrowers must abide by the lender-specific documentation and eligibility terms before applying for a small business loan. Lenders set the eligibility norms to determine borrowers’ repayment capability. Commercial loan truerate services
Besides adhering to business loan eligibility criteria, borrowers must submit necessary documents like KYC documents, financial statements, proof of business ownership etc.
Determine the loan amount
Before availing of a small business loan, individuals must have a pertinent idea regarding the loan amount they need to borrow. Opting for a loan amount higher than the business requirement will add to an extra repayment burden. However, to avoid over-borrowing, one must know the exact figure they need to borrow.
Check on loan tenor
To make the most of the financing option, individuals need to chalk out their loan tenor efficiently. One must settle for a repayment tenor after evaluating the maximum business cash requirements and analysing whether their monthly payments fit their budget. A longer loan tenor will reduce the EMI burden; on the other hand, a shorter repayment period will reduce the cost of borrowing.
One of the smartest ways to choose an optimum loan tenor is to use a business loan EMI calculator. In this context, individuals must know how to use a business loan EMI calculator.
- Maintain a high credit score
A credit score is a crucial factor that reflects an individual’s financial behaviour. As a small business loan is one of the best collateral free loans options, lenders scrutinise credit scores before approving a loan application. A decent credit score of 750 and above will boost the chances of getting rapid loan approval.
Moreover, maintaining a healthy score will position borrowers advantageously and help them receive lower interest rates. In this context, one must know what is a CIBIL score, and how does it affect your business.
2. Know about additional charges
Besides settling for a lower interest rate, borrowers must know the additional fees that lenders levy on borrowers. Before availing of a small business loan, one must check the penalty charges, processing fees, origination fees etc.
3. Go through the fine print
One must go through the terms and conditions of the loan option to avoid facing unnecessary financial turmoil. Prioritise the payment structure, hidden charges, loan tenor etc., before signing any loan agreement.
Considering the factors mentioned above will help individuals reap the benefits of taking a collateral-free business loan.
Furthermore, borrowers should check the pre-approved offers extended by leading financial institutions like Bajaj Finserv on various financial products like business loans, personal loans etc. These offers help expand the loan application process. Intending borrowers can check their pre-approved offers by submitting their names and contact details.
To sum up, a small business loan extends financial stability to budding small enterprises, helping them meet their financial requirements, sustain lean periods, procure inventories, and boost cash flow.