When someone starts a business or plans about restructuring it for having higher growth, there are thousands of things that come in mind. Among them, How to Finance Business is one such thing which strikes in every mind. Most of the entrepreneur agrees to the fact that a MSME business loans is a great source of capital for them. But, choosing the right type of business loan from available options including Short Term Loans, Business Line of Credit, Invoice Financing, Equipment Financing, Collateral Free Business Loans, Business Credit Cards, SBA Loans, Microloans, Commercial Real Estate Loans, etc. is a tough task. To help you in your dilemma and make things easier, here in this blog, we will talk about certain factors to look out for so that you take right kind of loan and do not overpay for it. Here, we are giving you a few pointers to keep in mind, before searching as well as applying for a business loan:
1. Do not apply for too many loans Generally, when people start their hunt for getting loans, they fill many application forms and apply to several banks & institutes, with the hope that something will stick. However, this is one such approach which can drastically affect your credit score and thereby reduce chances of qualifying for a loan. Â The wisest approach for getting business loan is to firstly find out the qualification criteria of lenders and then strategically apply for two or three options that you can qualify for. Before submitting the form, make sure to ask the bank or lender about all the associated credit check policies.
2. Do check about the loan cost that you’ll have to pay When you will ask bank or lenders about the loan cost, they describe it in different ways, some explain it by associating with the interest rate on the loan, whereas some will describe you the total amount of money that you will be paying back to them. This leaves loan seekers in high confusion in the end so the best option to deal with this situation is to ask the bank or lender about the Annual Percentage Rate (APR) of the loan.
APR is the total cost of a loan, which one has to pay over one year it includes all the associated fees as well. Mostly, the APR of a bank or SBA loan varies from approximately six to nine percentages. Lenders that provide fast loans and agree to work with even lower credit borrowers, generally take high APR. It must be noted that not always a low APR loan is better than a high APR loan. The short-term loans mostly have high APRs but as they are paid off quickly, you will not be paying interest for a long time, hence with them the total money that you pay back for them is relatively low.
3. Do check about prepayment penalties A prepayment penalty is a fee, which a loan borrower has to pay, if he wants to pay off a loan before the due date. As the early payment of loan, reduces the overall interest amount which a lender earns on the loan so he charges a penalty against it. When you are taking a loan from bank or any institute, you must try to negotiate for reducing or removing the prepayment penalty. You should carefully read the loan documents where details about it are mentioned, before signing the loan agreement.
4. Do check of the fact that which assets are at stake if you can’t pay back the loan There are many banks and funding companies that do not give quick business loans in India unless you put your valuable personal or business assets on seize/ stake so that if you don’t pay back the promised amount, they can take any or all of your assets to satisfy an unpaid loan. By signing on document which states about guarantee or assets you are putting as collateral, you give right to lender for seizing them if you can’t pay back the loan. Make sure to analyze the risk involved and read all the documents, before taking loans. However, it is advised to look for commercial business loans and take them, as they are more beneficial and less risky.
Conclusion There are many other things that you must consider and cross check before taking business loan for SME or MSME from any financial institute or bank. Avoid getting into trap of over interest/additional fee payments and pledging your valuable assets as collateral. It is the best to ask a trusted advisor or contact a reliable company that answers all of your questions before making you take a collateral free business loans. You can trust TI Lending for this purpose, it is an initiative of tradeindia.com , which from almost past three decades has been supporting and uplifting businesses. Â Source URL