Top 10 Factors to Consider Before Signing Your Business Loan Application
A business loan helps in not only meeting your current business needs but also lays the foundation for long-term success. Since business loans are an important aspect of the business cycle, you may be tempted to accept the first loan offer you receive. But before you sign on the dotted line of your business loan application, make sure you have considered all the important aspects of the loan. Here are the top 10 factors to consider before applying for a business loan.
Financial Institution Reputation
While the features of business loans offered by the various financial institutions could be more or less the same, every financial institution would not be the same in terms of service and reputation. Those that offer low-interest business loans are usually considered risky. In the wake of many business loan scams plaguing the loan market, watch out for these red flags when filling out a business loan application form.
- Check if the lender evaluates your credit report before approving your business loan application.
- If you are going for an online business loan application, find out if the lender has a physical location or if they have an online presence only.
- If the lender's representative pushes you to accept the deal right away, think twice.
- Check if the lender's website is well-designed and provides answers to all your concerns.
By analysing these criteria, you can determine if the lender is fake or genuine.
Loan Type
Business loans come in a customised form. You can easily find a variety of financing options, each tailored to suit your specific business needs. For example, you can opt for a working capital loan if you want to meet your operational expenses. Similarly, equipment finance aids in the acquisition of plants and machinery. Therefore, before filling out an application for a business loan and signing the loan agreement
, make sure you understand the type of business loan product you require for your company.
Collateral
Business loans can be secured or unsecured financing options. Like, if you are opting for medical equipment financing, your equipment will be hypothecated with the lender. Furthermore, certain lenders may require you to put up collateral for business loans, and if you default on your loan, they may auction your asset to cover their losses. Therefore, before signing a small business loan application, make sure you have checked if it is a secured or unsecured loan. In the case of the latter, consider if you want to risk losing your valuable asset. If not, then an unsecured business loan could be a better option for you.
Also Read: Get An Instant Business Loan. Find Out How?
Repayment Terms
Before signing your small business loan application form, it is important to go through the repayment terms of your loan agreement such as the EMI amount and if it offers any sort of repayment flexibility. If you anticipate uncertainties that may cause your payment to be delayed for a month or two, discuss it with your lender right away. Also, look into the terms of a business loan foreclosure. Sign the contract only if you are completely confident about your decision.
Payment Process
These days, most financial institutions are flexible about payback terms and payment processes. You must know if your lender prefers monthly, semi-monthly, or quarterly payments. Before signing your online business loan application form, you must also look at the different types of EMI payments accepted by your lender. Consider switching lenders if your preferred lender does not offer an alternative payment method other than the auto-debit payment mode, which may not be favourable for some borrowers.
Loan Amount
When signing the small business loan application form, most borrowers only consider the business loan interest rate and not the business loan amount. But what if you are offered an affordable interest rate, but the loan amount is capped at just 30% of want you need? Will this work for you? The answer is, no. Therefore, it is crucial to assess your financial needs and determine if the offered amount is too little, too much, or just appropriate. If what is offered does meet your objectives, apply for a loan with a different financial institution.
Interest Rate
Every financial institution offers business loans at different rates. Even though the rate is influenced by many factors such as your credit record, income, and more, lenders mention a minimum and maximum interest rate ceiling on their websites. Therefore, before you choose a lender or sign your application for a business loan, research various options available in the market. To compare the interest rates and offers, you can either visit the websites of different lenders separately or can check the complete list at one place on a loan aggregator's website.
Also Read: Simplifying Business Loan Documentation
Loan Fees
When your lender grants you an unsecured business loan, they charge you not only an interest rate but also a processing fee. In addition, there are other types of fees to consider such as rescheduling fees, foreclosure fees, EMI bounce charges, and so on. Although these fees are nominal, they should be taken into account while applying for a loan. Be watchful of hidden fees charged by some lenders and double-check the same with branch officials before signing your business loan application.Disbursement Time
A business opportunity will not wait for you. If you want to cash every opportunity coming your way, you must keep your funds ready. When applying for a business loan online, check what the existing customers have to say about the loan processing time. If your selected financial institution takes weeks or months to disburse the loan amount, you might want to look into other options.Customer Service
It is common to fumble with understanding loan terms, EMI payment methods or checking MSME business loan status online. In such cases, you may require the assistance of a lender's representative who can understand your circumstance and provide appropriate assistance. But what if the lender's website doesn't have a customer care number? What if the only method to receive help is to go to the lender's branch? In such situations, it is normal to feel frustrated. Therefore, before you sign a business loan application form, make sure you have done your homework on the lender's customer service.Also Read: A Complete Guide to Collateral Free Business Loans
How to Apply for a Small Business Loan?
If you are going ahead with an online business loan application, you must do the following:- Visit the website of your selected lending institution.
- To apply for a business loan, go to the business loan page and select the "Apply Now" option.
- Fill in the required details and upload the digital copy of your KYC documents.This might differ from lender to lender.
- The lender will make you a business loan offer after digitally verifying your information.
- The loan amount will be credited to your account once you accept the offer and complete the remaining formalities.
To Conclude:
Always weigh your options before signing your business loan application. Remember, you are not obliged to accept an unsecured business loan offer right away. You should take your time to assess if the business loan offered to you is a viable solution for your company's financing requirements. The more time you spend evaluating your loan offer, the more likely you are to select the best alternative for your business.
