5 important factors you should consider before applying for a business loan?

You should be aware of business financing if you’re an ambitious entrepreneur looking to launch a business endeavour. To avoid financial difficulties, the majority of business owners prefer to take a secured business loan. Small businesses can get secured loans from various lenders. You may obtain a secured business loan as a flexible lending option to get quick cash at a cheap interest rate. You must provide collateral for a secured business loan to convince the lender that you will return the loan within the specified time frame. Assets such as real estate, land, machinery, equipment, etc. can serve as collateral for a secured business loan.

Given that there is so much at stake, business owners should be careful while considering a loan request. After taking out a loan, you may have commitments to fulfil, and if you fail to do so, debt of such nature could end up costing you a fortune. Here are 5 important factors you should consider before applying for a business loan:

Loan Amount

Most applicants for small business loans don’t take into account the loan amount while signing the application; instead, they focus solely on the interest rate. But what if the loan amount is just capped at 30% of what you require while still having a reasonable interest rate? As a result, it’s critical to evaluate your financial requirements and decide whether the amount being offered is the right amount or is too little or too much. If the options provided do not match your needs, apply for a loan with a different financial institution.

Collateral Capacity

In general, collateral consists of assets that may be easily converted into cash to pay back the loan, such as cash, stocks, bonds, property, and many more. Providing collateral makes it easier for businesses to qualify for a loan and not get rejected compared to unsecured loan options. The safest way to reassure Banks/NBFCs that you have assets to repay debts in the worst situation is provided through collateral. The Banks/NBFCs approve the application only after evaluating the capacity of the collateral and whether it’s worth will be sufficient concerning the amount of the business loan you are seeking

Interest Rate

Business loans are available from various financial institutions at various interest rates. Although many variables affect the interest rate, including your income and credit history, lenders specify a minimum and maximum interest rate cap on their websites. As a result, it is wise to consider all your options before selecting a lender or submitting an application for a business loan. You may visit each lender’s website separately to compare interest rates and offers to choose the most suitable one.

Flexibility & Repayment plan

It is advisable to read and enquire every detail regarding your loan application. Interest rate, EMI amount, flexibility of repayment and terms of repayment are a few of the most important aspect of a loan. It is important to discuss possibility of delay in payment and their consequences with the lender and to see if it matches your expectations. Foreclosure terms as well are an important aspect to look for before signing for the loan. Banks/NBFCs provide number of payment options to their customers such as monthly or quarterly payments. It is crucial to discuss payment terms and to know the advantages and disadvantages of each type of payment options offered.

Loan Type

Business loans are of several types. It’s simple to locate a range of financing choices, each catered to your company’s unique requirements. For instance, if you need money to cover operating costs, you may choose a working capital loan. Similarly, equipment financing supports the purchase of machinery and plants. Therefore, be aware of the kind of business loan your organization needs before completing an application for a loan and signing the loan agreement.

Chola has launched the Secured Business and Personal Loan vertical to better enable this segment of customers. The offerings by SBPL are best suited for self-employed, non-professionals in the businesses of trading, manufacturing and services i.e., businesses with regular cash flows that need funds for day-to-day operations and business improvements. Avail industry’s best services at Chola.