Public Relations How to Choose the Right Business Loan Posted on December 26, 2018 Comments Off on How to Choose the Right Business Loan 0 142 A Business Loan can save a business, more often than not. It would be wrong to think that businesses need loans only towards the end of their life cycle and that any loan before that would be redundant for the business itself. In most cases, the business would simply need a quick influx of cash – and that is exactly what most types of Business Loans provide. However, there are many aspects to consider before you settle for the right Business Loan. Choosing a loan can be hard, as it also involves you having to choose the right lender and then the right amount. There are many aspects associated with it, and it can be slightly overwhelming for anyone. However, this article will help you in that case. Before choosing the lender for the loan and then the loan itself, there are a few aspects that you will have to keep in mind. Some of the aspects to remember are detailed below: The Loan Amount This is the crux of the entire process – it has a direct impact on the future of your business. Therefore, it has to be given the highest priority when the loan is selected. Some Business Loans, especially the ones from major banks like the HDFC Business Loan will seem more suitable if only this factor is kept in mind. When setting a loan amount for your business, you should already have considered the health of your business and the amount you are looking for. This will have to be mentioned when you are filling out the loan application form. It is important to be flexible and realistic when you are mentioning this since most lenders are sure to run a background check on your business and understand the growth potentiality of it. Most of all ensure that the lender you are approaching will be able to provide you with this loan. The Cost of the Loan This is the next most important thing to remember when selecting the Business Loan. A common mistake that many borrowers do, particularly when borrowing from reputed banks is that they only consider the interest rates mentioned, and not the actual amount they will end up paying. Some financial institutions may offer lower rates, but that does not directly mean that the tenure of the loan will be short too. You may end up paying considerably more when all is said and done. Also, remember to check how much all the other fees associated with getting the loan amount are. Processing fees, prepayment charges, and other fees like documentation fees may notbemuch when considered individually, but all of this can snowball into a large amount if you do not keep an eye on it. Mode of Disbursal The modes of disbursal for the loan amount can be of two types if considered broadly. Many banks and other financial institutions follow these two types. The first is called an installment loan, and the second is called a line of credit. In the first case, the entire amount demanded by the borrower is credited to his account and can be used according to the needs he faces in the business. The line of the credit system, on the other hand, involves a revolving credit system – the borrower will be able to withdraw any amount he sees fit at any time, provided that it is within the maximum credit limit of the bank. If you need a lump sum amount to keep your business afloat, the first option is the best way to go. However, the line of credit is the smarter option to choose if you need a small amount of money for a prolonged amount of time. Choose which method you want, as both have its advantages and disadvantages – depending upon your decision, you may end up paying significantly less than you thought you would have to. The Use of Fund Most of the lenders you approach will definitely be questioning you about how you are going to use the money which has been disbursed to you. Therefore, you will need to have a solid reason before approaching any lender in the market. They will be sure to check the viability and the credibility of the answer you provide, to ensure that you need the money before you start asking for a Business Loan. Also, you should have the answers ready to all potential cross questions which may come up, as getting the loan for your business directly depends upon these factors. Collateral This, again, depends upon some factors regarding your business. There are many schemes in banks and the financial institutions which provide you with secured and unsecured loans depending upon your necessities, the viability of your business, the size of your business and the amount you are approaching them for. The government itself has a lot of Unsecured Business Loan plans if you are only a budding start-up or an MSME. Therefore, be informed about the options you have before you settle for a loan which requires you to hand over collateral for it. On the other hand, collaterals can change the entire complexion of your application. If you are convinced that you will be able to make this business a success and pay this loan back quickly, providing collateral is not such a bad idea. Collateral in your application can increase your chances of getting the loan and even getting a larger amount. Therefore, consider all these factors before you choose the vendor for your loan. Getting a loan sanctioned can be a difficult process, and all these factors may end up overwhelming you when you apply for the loan. However, worry not – many of the banks have loan specialists that can help you traverse these difficult waters with ease. A Loan Specialist will help you make informed decisions and finally get to the vision you have dreamt of for your business.