Not all business loans are created equal! The terms of a business loan may not only vary from one lender to another but can also often change depending on the nature of the applicant. There are several factors that influence business loan rates and limit the amount you can borrow. If you’re interested in applying for a business loan to upgrade your startup or your enterprise, it would be great to know the factors that influence the terms of a business loan.
A few of these factors remain outside of your control area. However, fortunately, many others can easily be controlled and rectified with a little bit of effort, so you can enjoy more attractive business loan rates. Let’s take a look at the factors that you can, to a certain extent, control and resolve.
Your Set of Documents
All banks, financial institutions, and other lenders require comprehensive paperwork as part of an application for a business loan. To ensure that the terms of your loan are favorable to your business and well within your budget, ensure that your documents are accurate, duly filled in, and presented in order. It’s advisable to hire a financial advisor to help you get your documents ready for your business loan application, so you can rest assured that the paperwork is put together as per the required standards.
A Clear and Well-Laid Business Plan
Lenders also look into your business plan before deciding upon the terms of a business loan. So, ensure that your business plan is neatly laid out in a clear and understandable manner. Your business strategies need to be practical, and your goals, achievable. Above all, your business plan needs to address these essential questions.
- How much do you need to borrow?
- How do you propose to invest the funds borrowed through the business loan?
- What is your plan of action to repay the money borrowed?
These are the areas that your lender is most interested in, so make sure to give clear explanations for these questions.
Your Financial Statements
Your financial statements give the lender a better understanding of how you conduct your business. This, in turn, can influence your business loan rates. Errors and irregularities in your financial statements reflect poorly on your status as an applicant. To avoid these problems, it’s advisable to hire a professional accountant or a bookkeeper to audit your accounts and ensure that your financials are in order. You may also need to submit your tax returns as part of your application, so clear your tax dues and file pending returns, if any, before you apply.
Collateral for Added Security
On Finserv MARKETS, you can avail of a business loan with zero collateral. However, some lenders require collateral for added security. Collateral is generally a highly liquid asset that can easily be converted into cash or cash equivalents in case you default on your repayment. If the lender you’re considering requires collateral, ensure that you have something to offer up, so you can enjoy favorable terms on your business loan. Alternatively, if you require an unsecured loan, you could always apply for a business loan on Finserv MARKETS.
Your Business History
Many lenders may require you to have a business history spanning a set number of years before you can be eligible for a business loan. For instance, most lenders require a business maturity of around 3 years or so. Others may look for a longer or a shorter period. Since this varies from one lender to another, it’s best to identify what level of business history the lender of your choice is looking for and focus on meeting those criteria.
Your Credit History
Your credit history allows the lender to get a better idea of your ability to repay the loan. The terms of a business loan are heavily influenced by your credit profile. Your previous borrowing records, your credit score, credit report, and credit rating all play a key role in determining your ability to repay a loan. In most cases, lenders will also look at your debt to income ratio and your cash flow statement to judge your repayment capacity.
Your Borrowing History
If you approach a lender you’ve already borrowed from, you may succeed in obtaining business loan rates that are in your favor. This is particularly true if you’ve repaid your earlier loans promptly and in a disciplined manner. You can tap into any good working relationship you may have with your previous lender to avail another loan with attractive terms.
There are other factors that are not in your control, which also play a role in determining the terms of a business loan. The risk associated with your industry is one such criterion. Market conditions also influence business loan rates, and clearly, they’re outside the purview of your control.
The best way to approach a business loan application is to look at the factors that you can handle and control, and to take measures to ensure that you score well on those fronts. If you’re interested in availing a business loan without any hassle, head to Finserv MARKETS, check your eligibility, and fill out an application online. You can avail of loans of up to Rs. 25 lakhs at competitive interest rates in a jiffy. The loan approval and disbursement process is simple and quick, and the documentation requirements are minimal.
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