What is an ideal business loan - Business Loan Blog - Tata Capital

What an Ideal Business Loan Looks Like

Mar 07, 2017

I had absolutely no knowledge about how business loans worked when I started my first venture. However, I had obtained and repaid a personal loan for a foreign vacation and a vehicle loan for buying my car. I also was repaying my home loan. I thought I knew all about comparing options and identifying the right loan for my business. After all, it is all about low interest rates and low EMIs, right?

Well, after a decade as an entrepreneur, I can safely say that there is a huge difference between an ideal business loan and an ideal loan obtained for personal purposes. Allow me to show you what an ideal business loan looks like.

Easy Eligibility Requirements

The ideal business loan should have easy eligibility requirements. Unreasonable or irrational requirements can lead to a lot of frustration for you during the application process.

While lenders are entitled to do all that is necessary to mitigate risks and safeguard their interest, there should be flexibility and a pragmatic approach as well.

Related: Is my business eligible for a business loan?

Clear and Affordable Interest Rates

There is a computer-related term that I like a lot-WYSWYG or What You See Is What You Get. A lender who offers the loan at 13% and finalises the deal accordingly is always preferable to one who begins at 8% and proceeds to pad up charges, fees, and other levies until the effective rate is 15%!

Interest rates can be negotiated on the basis of your credit score, loan amount, and the collateral you offer. However, the rate, once finalised, should remain the same. This is essential for you to plan your finances with confidence.

Flexible Repayment Options

I never bothered to take flexibility in repayment into consideration when borrowing for personal reasons. Paying a fixed amount every month was the most convenient option. As an entrepreneur, I found that flexi-repayment options could be used for smart financial planning. The option of paying less early on was very useful when my business was yet to stabilise. I increased the EMI amount every year as my business and confidence grew.

When going in for an expansion plan, I chose to pay high early on, since my existing setup could absorb the strain. I cut my debt quickly and enjoyed greater savings combined with increased profits.

Of course, I still transfer revenue from unexpected orders to the loan account to bring it down faster. For me, an ideal business loan would be one that gives me this flexibility without any penalties or additional formalities.

Related: How to make best of the Flexi EMI option

Multiple Loan Options

As an entrepreneur, I need working capital to pay my monthly commitments like bills and salaries without worrying about collections. Also, I need an overdraft to manage my short-term cash flow without any hassles. Finally, I need long-duration term loans to finance strategic investments for the business.

An ideal loan provider will be one who offers all these services under a single roof. Dealing with multiple lenders may lead to confusion as different lenders have different policies and charges. Of course, borrowing three types of loans from a single lender gives me greater bargaining power as compared to borrowing from three different lenders.

Related: Business Loans - Different needs different options

Quick Hassle-Free Disbursement

It is funny how some lenders behave as if they are doing you a favour by giving you a loan. It is a business transaction where you pay interest for the funds you borrow. As a customer, it is your right to enjoy good service and the ideal loan will be one that involves minimal delays or hassles.

Pre-approved offers, short processing delays, and detailed information online are some basic facilities I expect from the ideal loan provider. Of course, a strong brand name with good market credibility would not hurt either.

Online Account Access

With banking services available online and even on smartphone apps, being forced to visit the lender's office to request a statement or foreclose a loan will be a ridiculous waste of time. I should be in a position to access all my loan accounts online in a safe and secure manner. The ideal loan should leverage technology for increased convenience at reduced costs.

Related: Confused how much loan you'll need? This calculator is here to help you

You may have noticed that I have not mentioned conventional points like low interest rates and low processing fees. As entrepreneurs, we should focus on value for money. A day spent arranging the loan or completing formalities is a day's profit lost. Business is all about offering value and your business loans should help you enjoy the same. That is what all ideal business loans look like.