Regardless of what level of growth your business is at, there will likely be a time when some extra funds could be useful. This is especially true now, as many small businesses struggle to recover from the COVID-19 pandemic. Borrowed capital is used by many firms, small and large, to fuel expansion and fund various other business endeavors.
Let’s take a look at 5 rules that any firm looking to apply for a business loan should bear in mind:
- Establish the purpose of the funds: This is probably the most basic rule that every business should follow before they apply for any kind of advance – determine the exact purpose of any proposed extra funds. A business loan is given more easily to those businesses that have a growth plan in place, so make sure you have done your groundwork there. You may require the funds for say, business expansion, to use as working capital, to finance the supply chain or to hire new staff. Whatever the requirement, the project or business goals and objectives as well as the path to achieve them should be clearly set forth before you apply for a business loan.
- Conduct research on different financiers: Few people remain unperturbed when they have bought a product and just found the same thing available elsewhere at another merchant for a much lower price and maybe even better quality. It’s important that you do your bit on learning about the best lenders, their loan offerings and the various features associated. Doing this can help you get your hands on funds from a reputed financier and enable smoother business growth.
- Improve credit history: Before approving any kind of loan, it is but natural for a bank or financial institution to assess the borrower’s credit history. Improving your credit score takes time, so make sure to plan well in advance for it. You can obtain a CIBIL report before you apply for a business loan so that you know where the business stands in terms of credit rating. Businesses with poor or negative scores have less chance of getting any kind of loan approved. Timely repayments, nature of business and consumer credit facilities can all affect your credit history. It’s crucial that you determine ways to improve the score and stick to them before you approach anyone for extra funds.
- Prepare documents: Once you have identified and shortlisted 1-2 reputed financiers who seem to provide business loans on low interest rates with flexible repayment terms, you might want to go through their document checklists so that you have all the necessary paperwork ready. Once you are ready to apply for a business loan, ideally you would want to get your hands on those extra funds at the earliest. For this, it helps to have all your documents ready for the lender’s scrutiny.
- Borrow realistically: If you have a good credit history and all the necessary paperwork ready, it is likely that you will get a business loan approved pretty quickly. Now you may think getting a larger loan will aid in faster business growth, but you might want to think twice before doing so. A larger loan means that you have larger installments to repay every month. This can affect your cash flows and liquidity status. So, it might be better to borrow only how much you can actually afford to pay back. Remember to make payments in a timely manner so that you don’t ruin any opportunity to borrow larger amounts in the future.
These are some of the basic rules that every business can follow in 2021 before they apply for a business loan. Adhering to these guidelines will certainly help them get loans approved and disbursed faster.
You can avail of a collateral-free business loan from Bajaj Finserv in a simple online process and with minimum documentation. You can get a high-value loan by fulfilling the simple eligibility criteria.