As per a recent report, the Small and Medium Enterprises (SME) in India are forecasted to contribute $158 to $216 billion towards GDP in the upcoming four years. Primarily, the adoption of technology, easy access to small business loans, etc., are some of the factors that have bolstered this growth.
Although almost all financial institutions offer this credit facility to eligible business owners, borrowers need to consider a few factors before applying for this fund.
Following are the aspects that business owners should consider while availing a business loan for small enterprises.
- The exact fund requirement
The first-factor business loan seekers should do is determine the exact business loan requirements. Every business has unique needs, and thus the purpose to avail the credits also changes. Hence, by determining the purpose of it beforehand, they can utilise the funds appropriately.
For instance, they can use the funds to expand their business, purchase new machinery, hire new employees and for several other reasons.
Besides knowing the purpose, business owners should also decide the loan amount. This facilitates ease of repayment and helps in clearing the debts faster.
- Eligibility criteria
It plays a crucial loan in availing of small business loans. Lenders set eligibility criteria to check the repayment capacity of borrowers. Hence, before applying for this fund, business owners should check this aspect to enjoy instant loan approval. The eligibility includes the following –
- Business vintage should be at least 3 years.
- Age of borrowers should be 25 years to 65 years.
- Company must have a steady source of income.
Besides, lenders also check the credit score before approving the fund. Hence, individuals need to ensure their business CIBIL score stays above 700.
- Repayment options
On-time repayment is of utmost importance as any irregularity in the same can cost you dearly and lead to debt traps. Hence, before opting for small business loans, it is crucial to check the repayment structure like tenor, interest rate, EMI payable, etc.
Top financial institutions like Bajaj Finserv offer business loans of up to Rs.45 lakh to small business owners with easy repayment options and competitive interest rates.
This NBFC also extends pre-approved offers that make loan processing hassle-free and saves a lot of time. These are available on several secured financial options like personal loans, business loans, credit cards and various others. You can check your pre-approved offer by entering some basic credentials like your name and contact number.
- Current liabilities
Before applying for a new business loan, you should also assess existing liabilities. Piling up the debs can affect your credit score significantly, and in turn delay the repayment process.
What you can do is clear all the debts before applying for a new loan; it will improve your eligibility by reducing FOIR. In this regard, you can also consider the advantages of debt financing for your business.
- Annual turnover
Lenders always check the annual turnover ratio before approving small business loans. Hence, if you plan to opt for a loan in the near future, you should find ways to increase the turnover to avail assured funds.
Along with that, you should also conduct precise business and investment planning. It ascertains lenders about the dire necessity of this business loan for small enterprise.
- Document checklist
Besides checking the turnover and eligibility, lenders also ask to submit necessary documents. Hence, before approaching a lender, it is vital for you to keep all financial and business-related documents ready.
For instance, you need to present documents like KYC, PAN card, ITR documents, bank account statements, etc.
- Additional charges
Servicing a loan often attracts some additional costs. Lenders may charge processing fees and levy prepayment charges, foreclosure charges, etc., as and when required. Ask your lender for all possible charges that you may have to pay later within tenor.
These are some of the factors that you have to consider while applying for small business loans. You should also negotiate with lenders to avail the best deals.