Ensure Smooth Business Loan Process - Business Loan Blog - Tata Capital

10 Ways to Ensure That Your Business Loan Process is Smooth

Mar 07, 2017

It is a pre-conceived notion that availing of a loan for business purpose is a cumbersome task. On the contrary, the application process has simplified with the advent of digitalization. Many lenders now have an online portal wherein promoters may apply for a loan.

In order to avoid the stress associated with the loan application, follow the below-mentioned ten tips.

1. Identify the amount to be borrowed

It is important to identify the requirements of the business and borrow accordingly. Borrowing a higher amount than required will cause a strain on finances, whereas borrowing a lower amount will lead to insufficient capital to run the business.

2. Identify the loan tenure

The loan tenure refers to the duration to repay the loan. Higher the loan duration, lower will be the repayment option, and vice versa. However, it is important to remember that a higher Equated Monthly Installment (EMI) attracts a higher business loan interest rate.

3. List your available collateral

In case the loan amount is huge, financiers require collateral against the loan. This collateral serves as a security in case you default on your loan payments.

4. Compare lenders

There are many financiers in the market who offer differential interest rates along with numerous benefits. Opt for a well-known lender in the market who offers schemes and benefits like customized repayment plans, higher borrowing limit, and extended business loan tenure.

5. Ask questions

A key component of borrowing is to make a well-informed decision. Therefore, solve any queries you may have about the loan. You may either visit the nearby branch or call the customer representative.

6. Check the eligibility criteria

Every lender has a list of eligibility criteria that applicants have to fulfill, Though the criteria vary from lender to lender, it is necessary to fulfill minimum and maximum age criteria, meet the business turnover limit, and any other criteria specified by the lender.

7. Maintain good credit score

Along with meeting the eligibility criteria, it is also important to ensure that you have a good credit score. Most lenders offer favorable loan terms in case of a good credit, as the risk of default is low in such cases.

8. Demonstrate adequate cash flow

Portraying a good cash flow is necessary for existing businesses. It helps lenders identify that your business has sufficient cash to make regular EMI payments. For this purpose, lenders ask for financial papers like past tax returns and existing debt.

9. Submit the necessary documents

The list of documents varies from lender to lender, but the basic list remains the same. Financiers require Know Your Customer (KYC) documents, proof of business existence, and other business-related documents.

10. Avoid applying for another form of credit

Once you have received the loan amount, do not apply for any additional credit. Remember, a loan is a liability and has to be repaid over a period of time. In case you avail of other debt, you will experience a strain on your business finances as you have to repay multiple loans.

Follow the aforementioned tips to ensure that your business loan process is smooth. On receiving the capital, you may utilize it to either fulfill your dream of setting up a new business or for further growth and expansion of your existing business.