A business loan is availed to meet the urgent financial requirements of the business. The business loan is one of the best options for businesses to get funds for their everyday operations and activities. There are many best business loan lenders in India that offer business loan at minimal documentation and best interest rates.
However, a business loan is availed to meet business requirements. Therefore, it is important that it fulfills the purpose for which it is availed. And for that, there are a few considerations that the business owner must make before availing it.
The below-mentioned points are the important considerations that you should make before availing a loan for business:
Loan Amount:
The loan amount is an important consideration. Before availing a loan for business, it is important for you to know the loan amount you require. Notably, the loan comes with the interest charges. And in case you avail the loan amount more than your requirement, you will only keep it in the bank account and it would only cost you extra interest cost. Whereas if you avail a loan of the amount which less than your requirement, then it will not fulfill your requirement. And thus, the loan would again not fulfill its purpose.
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Loan Purpose:
Before availing the loan, it is important to know the purpose for which the loan is availed. In case there was a requirement for working capital and upon availing a business loan, you actually end up buying new machinery or equipment. Then, your sole purpose of availing a business loan of easing up working capital would not be solved. And thus again, the amount secured under business loan would be of no use to you.
CIBIL Score:
CIBIL score or credit score is an important eligibility criterion to avail a loan. Remarkably, the CIBIL score is the representation of a borrower’s creditworthiness in terms of numbers. Higher the CIBIL score, higher the borrower’s creditworthiness. So, almost all loan lenders check the borrower’s CIBIL score before approving loans.
Therefore, it is important that you check your CIBIL score before applying for a business loan and work towards improving it if it is below the required threshold. The minimum CIBIL score for business loan is said to be 700.
Collateral:
Collateral is one of the major requirements of a loan for the business. You must know which asset you are willing to put as collateral and if you have proper documents for it or not. In addition, the monetary value of the asset must be more than the amount you require as a business loan.
However, in case you do not have any collateral or are not willing to take the risk of hypothecating it, you can avail a collateral-free loan. Also called the unsecured business loan, a collateral-free loan is offered without collateral. This type of business loan is usually offered by the NBFCs. And banks usually do not offer unsecured business loans since the risk is high.
Eligibility Criteria:
Although all the lenders have different eligibility criteria and you practically cannot meet all of it. You can look for a generic list of the eligibility criteria for a loan for business and be ensure that you meet it. The following is a general list of business loan eligibility criteria:
- The business must be in operations for at least 3 years.
- The ITR filed must be more than INR 2.5 lakhs.
- The business turnover should be more than INR 10 lakhs.
- The business owner must own either house or office premise, in the case of collateral-free loans.
Business Loan Documents:
As with eligibility criteria, the business loan documents also differ from one lender to another. And so, you must be ready with some commonly required documents. The following is a generic list:
- Bank statements for last 12 years.
- Address proof and identity proof.
- Office address proof.
- 2-4 passport size photographs.
Tenure:
Business loan tenure means the business loan repayment tenure that will suit your pocket. You must know the time period for which you can avail a loan and you will be able to repay your loan entirely without any bouncing instances. There are many lenders who offer flexible repayment tenure – you can choose the best loan lender among them.
The Bottom Line:
A business loan comes as the saviour for small business owners who are looking for additional sources of funds. And now that you know a few considerations about a business loan, you can make a sound choice.
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