Running a small business is not an easy task. Managing all the day-to-day activities of the business requires manpower and funds. At many instances, running the business smoothly becomes difficult. Many factors like fluctuations in the market, the introduction of new technology, competition in the market, lack of funds, etc., can affect business growth in the long run.
A small business owner might require a loan at least once during the whole business lifecycle. Whether it’s for buying new machinery, expanding the business, hiring new and more experienced employees, meeting the working capital needs, or for any marketing activities, a business loan can help a small business owner in every way.
There are many types of loans that are available in the market nowadays. One just has to be careful in reading the terms and conditions and the eligibility of the lender.
But before you decide to go for a small business loan, you should know how much funding is required for the business and for what purpose. For doing this, the business should be monitored regularly. If it’s not possible to do on your own, then help from an expert like an accountant can be taken.
Funding options like a working capital loan, term loan, government schemes, bank loans, equipment and invoice loans, cloud funding and crowdfunding, unsecured loans, loan against property, loan against securities, loan against gold and angel investing are available for a small business owner.
Different Types Of Commercial Loans A Small Business Owner Can Choose From
1. Working capital loan
Working capital loans basically are short or medium-term loans for small business owners who are looking to grow their business. The amount of this loan depends on the eligibility of the small business.
Going for an unsecured working capital loan from an NBFC is better than going for the secured one as this will involve an asset which will have to be given as security.
2. Term loan
A term-loan is a long-term loan where the lender wishes to finance the business idea for credit to meet the financial requirements of the business. Term loans have a fixed duration and a repayment schedule, and a lower rate of interest, but it depends on the credit of the business.
Term loans can be secured or unsecured and can be anywhere between 15-20 years with a fixed or variable rate of interest.
3. Government schemes
Government schemes like the CGS (Credit Guarantee Fund Scheme for Micro and Small Enterprises). SMILE (Small Industries Development Bank of India Loan for Small Enterprises), Credit Link Capital Subsidy Scheme For Technology Upgradation, NABARD, NSIC, Mini Tools Room And Training Centre Scheme, Market Development Assistance Scheme, Technology And Quality Upgradation Support, Mudra loan scheme, and Stand-Up India Scheme are there for small businesses.
4. Bank loans
Bank loans are mostly secured loans where some security has to be given to the bank to avail the loan. The interest rate of this loan depends upon the credit score and the borrower fulfilling the eligibility criteria.
5. Equipment and invoice loans
Equipment loans are mainly for businesses with manufacturing processes. Banks offer equipment loans for equipment that can cost up to 25 crores, some banks also offer up to 100 crores. The duration of this loan is from 4 to 5 years.
Invoice loans are offered for raising funds due to the time difference between raising an invoice and getting paid. Banks offer these loans at 80% of the amount of an invoice and the rest when an invoice is paid fully. For these loans, a small amount of processing fee and a lower amount of interest is deducted.
6. Cloud funding and crowdfunding
Cloud funding is another way of getting funds for your business via a number of investor groups, which allows sharing business ideas.
Crowdfunding is a group of individuals who help your business ideas reach prospective investors. It allows to reach out to different investors rather than one big investor.
7. Unsecured loans
Unsecured loans are the ones that don’t require any security as compared to secured loans where something has to be given as security.
For unsecured loans, you just have to visit the lender’s site, apply online with the required documents, and the loan amount will be disbursed as soon as it is approved.
If one wants to apply for a loan, one has to choose the correct lender as well. Lenders like banks, NBFCs, and some government schemes are also there to choose from.
Banks mostly provide loans with security where something has to be given as security. NBFCs provide unsecured loans and have a simple online application process.
Places To Get Small Business Loans In India
Here are some places you can apply for small business loans in India:
The most common form of lending is bank loans or secured loans. Secured loans include collateral. These include machinery, bonds, stocks, equipment or real estate.
The most common and straightforward form of lending is secured loans. Banks usually offer secured loans to small businesses.
Only after the entire loan including loan interest has been paid to the lender/bank, the asset given would be released by the lender.
In case the borrower defaults in paying for the loan, the lender will take the ownership of the asset, and can retain the losses by selling it.
Secured business loans are a good option if you want to restrict your personal risk in the investment or you want to lower the rates of interest and have a longer tenure to pay back the loan amount.
An NBFC (Non-Banking Financial Company) is another alternative to avail a small business loan. The application process for NBFCs is much simpler than that of banks. Banks usually have a long and tedious process, have a big huge list of rules and regulations, and they also ask for collateral which is not the case if you go for an NBFC.
An applicant just has to have the required documents, should meet the eligibility criteria, and have a good credit score/CIBIL score.
3. Government schemes
Some government schemes like the Mudra Yojana scheme, Stand-Up India scheme, and the SMILE scheme can be sued by small business owners to avail business loans.
Mudra Yojana scheme
Mudra loan scheme is a scheme launched by the Prime Minister to provide loans up to 10 lakhs to the non-corporate, non-farm, small/micro-enterprises.
Mudra loan is provided by commercial banks, RRBs, Co-operative banks, etc. An online application can also be made by the borrower.
Mudra loan has three products, Shishu, Kishore, and Tarun. Shishu covers loans up to INR 50,000, Kishore covers loans above INR 50,000 till up to INR 5,00,000, and Tarun covers loans above INR 5,00,000 till up to INR 10,00,000.
Stand-Up India scheme
This scheme is basically to provide easy, convenient, cheap, and collateral-free loans to women entrepreneurs who are of the scheduled tribe, and scheduled caste.
In this scheme loans of Rs. 10 lakhs till up to Rs. 1 crore is offered with a tenure of 1 to 10 years.
When a small business owner wants to avail a business loan, which loan to go for secured or unsecured? Which is more feasible for a small business owner?
Like mentioned above, secured loans involve collateral which is not possible for a small business owner.
What Should You Choose: Secured Or Unsecured Small Business Loans?
Here’s how you can decide what’s ideal for you.
Secured Business Loans:
Secured loans have lower interest rates and they have an affordable repayment plan. The repayment time in a secured loan is more flexible and you can try to reduce the amount you pay in a month. This gives times to meet their other financial or personal obligations to fulfill.
In case of a secured loan, you can get a higher loan amount because of the collateral that is involved.
Even though you have a poor credit history, you can get secured loans, because of the collateral, the lenders may be little lenient.
If you default on the repayment of a secured loan, the lender has the right to claim the asset used even without a court order. Because of this, the debt will show up on your books of accounts for a longer time.
Unsecured Business Loans:
In the case of unsecured business loans, since there is no collateral involved, the lender can not seize any asset if you default on a payment.
Getting an unsecured loan is comparatively easier as there are many lenders available in the market, and the loan disbursal time is also less, sometimes even within 3 days.
If you default on an unsecured loan, the lender will place a lien on your assets, and you might have to pay the original loan amount along with the late fees, and court costs.
Even though secured loans have many advantages attached to them, going for an unsecured loan is a better option because of the ease of application, faster approval, and quick access to funds when needed.
If you want to apply for a business loan, knowing the eligibility is very important.
Are you looking for an unsecured business loan? You can get it at an affordable interest rate here.
Eligibility Criteria Needed To Apply For A Small Business Loan:
- The minimum turnover of a business to be eligible for a small business loan should be anywhere between, Rs. 15 lakhs to Rs. 1 crore.
- Age of the applicant cannot be less than 21 years when applying for a business loan, and cannot be older than 65 years at the time of maturity.
- The number of years the business has been active or has been operating is also a criterion to be eligible for a small business loan. The minimum number of years a business should have been active is 3, but some lenders also offer loans to business that have been active since only a year.
- Another important criterion is the credit score of the applicant. This is also evaluated before granting a business loan. This is also referred to as CIBIL score. Some of the lenders also have their own credit evaluation methodology. A good credit score is very good while a bad one can be a negative point for the borrower.
- Some other criteria include the loan amount, loan purpose, industry, company type, employer identification number, and proof of collateral (if any).
Before we head on to the next step, let’s talk about the credit score. Most lenders will consider the credit score of a business when they receive a business loan application. Here’s what it means to have a good credit score when applying for a small business loan in India.
Credit Score For A Business Loan In India
A credit score is a 3-digit number which ranges between 300-900. All of the lender institutions check the credit score of the applicant. A good credit score ranges from 750-900 and increases the chance of loan approval. A good credit score also helps you in getting the loan at affordable interest rates.
A credit score is generally provided by some credit bureaus. Some lenders also have their own credit evaluation methodologies.
Here is how you can check your credit score:
- You can check your credit score by visiting the websites that offer the service of providing free credit scores. CIBIL also offers this service of a free credit report. But it is always important to check the terms and conditions before using their services.
- Another way to check credit scores is by creating a CIBIL account and then logging into your account or with your monthly statement if you opt for this option.
- lastly, the credit scores can also be checked by visiting a credit counselor who can get your credits scores and can also go over the details of the same with you.
- If you want to check your credit scores via the CIBIL website, you will have to fill out a form with details like date of birth, gender, address, and identity proof like a PAN card or Aadhaar card.
- After this, you have to accept the terms and conditions, once you do this, CIBIL will show your Credit Information Report.
- You can get your full credit report only one time in a year. But, if you want to see your CIBIL report again in the year, you will have to pay Rs. 550. There are also a few paid subscription plans to check the CIBIL score reports.
The Importance Of Having A Good Credit History For Business Loan Eligibility
Credit history contains information like contact details of the borrower, professional details of the borrower, information about loans taken previously, loan repayment history, the criminal history of the individual, if any, and credit details. All this show the financial behavior of the borrower.
If you have a low credit score and you are worried about this affecting your loan application, then here are a few ways to improve your credit score/credit history:
- Keep a tab on your credit card balance and use your credit card only during emergencies. Stop the usage of your credit card when there is less balance left.
- Pay your bills on time.
- Clear all the payments of the creditors.
- Do not close all credit accounts at a time. When you close your old and unused accounts, it will help you save on the unnecessary fees, but if you close all at a time, it can have a negative effect on your credit score.
- Set reminders for payment.
- You can also customize your credit limit based on your expenses.
- Go for a longer tenor when you take a loan.
- Do not have many debts at a time.
- Check your CIBIL report for errors and rectify them without any delay.
Once you are considered eligible, you will need to submit the relevant documents required for a business loan. Let’s take a look at them.
If you want to check your business loan eligibility, here is a quick link.
Documents Required For A Small Business Loan:
- PAN Card of the proprietor
- Aadhaar Card of the proprietor
- Bank statements of the last 12 months (in PDF format)
- Income tax returns of the previous 2 years (business and personal)
- Latest Balance Sheet and P&L (Provisional)
- Latest Audited Balance Sheet and P&L
- Gumasta or Shop Establishment License
- GST Registration Receipt
- GST Receipts/Challans
- A business plan
- The licenses and permits for business
- Proof of collateral (if any)
- Annual business revenue
- Ownership and affiliations
- Other legal contracts and agreements
Once you’ve submitted the relevant documents, and if everything else is in place, your business loan application will be approved and the amount disbursed. However, before you go ahead and apply for a business loan, make sure you have thoroughly thought about your decision.
Things To Note Before You Apply For A Business Loan
1. Know what you need first
First, evaluate your requirements. You should be able to give the supporting documents, meet the eligibility criteria to justify and support the need for the loan and the amount.
2. Know about your credit score/credit history
After receiving your loan application, all of the institutions will conduct an inquiry about your credit score. Some institutions will also refer to public sources like CIBIL. Some institutions also have their own methods of evaluating the credit history of a business.
Some of the factors that can also be looked into before applying for a business loan can be the payment history, the amount owed, application of any new credit, types of credits in use.
3. Do research about the business loan eligibility and the documentation required for different institutions
Different institutions have different eligibility criteria and documentation to evaluate an applicant.
It is always advisable to conduct research on the eligibility criteria of different institutions. Another thing one can also know about is the industry a lender prefers to invest in, startups or established businesses, and also if they offer loans with collateral or without collateral.
This is a way in which a business can improve the chances of getting the loan application approved and avoid any rejections because rejection can also impact your credit score in a negative manner.
Some institutions also provide quick loans, for which there is an online process, where an application has to be filled and the required documents have to be uploaded. The application will then be evaluated with the help of technology.
4. Keep all your financial statements ready
Financial statements will also be asked by the lenders to evaluate how financially sound your business is.
A lender has to be convinced that the business is growing and is strong. The lender will also look at the cash flow of the business. Poor cash flow is a negative point and can cause difficulty in the evaluation process of the lender of the business’s repayment ability.
This Is How You Can Get A Business Loan
If you are looking for secured business loans, the process would be to apply for one with a bank, provide the necessary collateral/security, and wait for the bank to approve your business loan application. If you have decided to take an unsecured business loan, there are a lot of NBFCs that offer online business loans. The process is very simple:
1. Apply for the loan
After you select a lender whose eligibility criteria you meet, fill the loan application online. It is important to fill all the details carefully in order to avoid application rejection or any confusion.
2. Submit the documents
Upload all the relevant documents. Make sure you choose a lender that ensures the safety of your documents since they are confidential.
3. Get your loan application approval
After you fill the application, the lender will then evaluate each and every detail. Online lenders usually have an automated evaluation process of their own. Loan approvals are much faster using automated evaluation. If you want faster loan approval, choose online lenders who have a quick evaluation process.
4. Avail loan disbursal
After the loan application is approved, the next step is loan disbursal. The loan amount is disbursed as soon as the loan application is approved. Some lenders like the online lenders will disburse the loan amount within a few days, some also within 3 days or less.
There may even be a possibility that your business loan application gets rejected due to some reasons like a low or bad credit score, finances being in a bad state, no proper proof of identification, etc.
Even though rejection is a difficult thing to accept, it does not mean that nothing can be done further. Instead, rejection will give you the time to evaluate your business and then start working on an action plan.
What You Should Do If Your Business Loan Application Is Rejected
Here are some of the first steps you need to take if your business loan is rejected:
1. Identify the reason for the rejection
The first step is to understand the reason of loan rejection.
If you do not have a credit history because of your new business, the lender may find it difficult to lend you funds. And if you have a bad credit history, the lender will not take a risk by offering a loan to the business.
If the business has a lot of credit this also might be a reason for suspicion to the lender.
Make sure all of the business details are correct. If the entered details do not match with the documents provided, this can also be a reason for rejection.
False financial statements or any problem in cash flow can also be a reason for rejection.
The lender might also have rejected the application due to the industry your business in, after assessing the risk which is involved in investing in your business.
2. Work on building your business fundamentals
Maintaining healthy cash flow is important for the business. It is a crucial aspect during business loan application. Bad cash flow may curtail your ability to repay the loan in time. This may be a cause of concern to the lender, and they may reject your business loan application.
3. Improve your business and personal credit
If you go for an unsecured loan, the credit score of the business and the past record play an important role in determining the eligibility.
To make sure that the credit score of the business is good, all the existing debts, bills, and installments have to be paid on time.
If the business doesn’t have a credit history or has one that is limited, the business owner can get a credit card for personal or business expenses and also make sure that all the payments are made on time.
If the lender sees that the business is trying to improve the credit score, the application might be reconsidered.
4. Look at other alternatives
Looking at other alternatives at the same time for a business loan may be damaging to the credit score of the business, but it is ideal to do a research about the eligibility criteria, lending policies, and the interest rates of various lenders.
It is a good option to go for crowdfunding or angel investors for startups. The established businesses can look at other options/institutions for loans.
If your business loan application has been accepted, you can rejoice. But, this is just the first step in your journey. Getting a business loan is one thing and making sure you are using it right is another. Once you’ve got the business loan amount, you need to make sure you’ve got a plan.
Things To Do When Your Business Loan Application Is Accepted
Here are some of the steps you need to take once you receive the business loan amount.
1. Make a repayment plan
It is very important to repay the loan amount on time. This is also to make sure that any loan applications and approvals in the future do not get affected.
Add the payments to your monthly budget or arrange for automatic payments from your business bank account to ensure that they are paid on time.
If you default on a payment or even miss any payments, it will affect your credit score and credit history.
2. Know about loan prepayment options
Check if you can pay off the loan amount before the maturity date. If the cash flow of your business permits to pay off the principal amount, you could save money on interest, along with building a good credit history.
But some lenders also charge a penalty for prepayment since they would then lose on the interest they would be earning if the loan amount is not paid till after the due date.
3. Keep a tab on your credit score
Check your credits core after a few months after you received your business loan. Proper and on-time repayment can improve your business credit rating.
A good credit score depends on the repayment terms and conditions agreed between you and the lender.
4. Refinance your loan into a lower-cost loan
If you have got a short-term loan, you can refinance it into a long-term loan with a lower rate of interest.
If your revenues are increasing consistently and your credit score is improving, then this is a good option for you.
You can also refinance into a loan with a fixed rate from a variable-rate loan if the interest rates are expected to rise in the near future.
5. Maintain a good relationship with your lender
Maintaining a cordial and good relationship with your lender, along with making timely payments, can help in getting better terms in the future.
If the lender will report to the business credit bureau, it will have a positive impact on your credit score.
6. Use the funds taken widely
Think about how you want to spend the money you have borrowed. Make sure you do not use it for any other project and for any other purpose.
Use it for the purpose it has been taken. Whether it be to hire productive staff, to buy new equipment, upgrade your technology, or to launch a new product.
If you decide to do prepayment of your business loan, you can reduce the tenure and also the burden of interest that is there with the loan.
There are two types of prepayments, full prepayment, and partial prepayment.
If you go for full prepayment, you will pay the whole loan amount before the loan tenure, this way you can save on the interest. The rules and procedure of full prepayment will depend on the lender, therefore, it is necessary that you first know if your lender provides this facility.
If you go for partial prepayment, you will have to pay a part of the loan amount. This will help in reducing the principal amount, the EMIs, and also the interest. Check if your lender provides this service.
If there are excess funds with you, a better option is to go for loan prepayment, or what is called foreclosure.
Things To Consider When You Decide To Go For Loan Foreclosure
Here are a few things you need to check and be sure of before deciding to pay off a loan in advance:
1. There is a foreclosure charge attached to it
Loan foreclosure will lead to a loss of interest for the lender, which is why the lender will discourage this option and will levy foreclosure charges and a prepayment penalty if you decide to go for this step.
These charges will negate the savings made on interest charges in case of loan foreclosure or prepayment.
Also, read the terms and conditions properly before you go for loan foreclosure. You can also negotiate with the lender about the foreclosure charges before you take the loan.
2. Might lead to a problem in cash flow
Loan foreclosure may lead to cash flow problems, during the month such payment is made.
Make sure you think over this properly and not take another loan to cover the cost of repaying the loan taken earlier. Just be careful that loan foreclosure does not land you in a situation where there is a shortage of funds.
3. Know about the cash usage
It is not necessary to prepay a small business loan. Cash usage has to be checked every time.
And if you want to go for this step, firstly make sure that there is no other important thing for which cash might be required. This could be for buying a piece of equipment or machinery, for inventory, or for other payments and to cover any seasonal losses.
The interest which is paid on your small business loan can be claimed as a deduction while filing your tax returns.
By paying off the loan amount earlier, you show higher profits, However, by paying the loans off early, you show higher profits, and as a result, paying more taxes.
For a small business, this is a major point of consideration.
5. Credit score
The credit score is also a major criterion to be eligible for a small business loan.
Ideally, it is good if one borrows from lenders who report to the credit bureaus. They report about your repayment history to the credit bureau, in turn establishing your credit history and score, which can be referred to in the future.
If you have been making the payments religiously, you can obtain small business loans in the future.
Since foreclosure of the small business loan can result in a loss for the lender, the lender or lending institution may report unsatisfactory repayment of the loan to the bureau, which will affect your credit score negatively. A way to avoid this is to discuss with the lending institution beforehand and choose lenders who won’t be dishonest with you.
Loan prepayment or loan foreclosure does seem like a good option but it is advisable to consider the pros and cons thoroughly.
When you decide to repay your loan, it is better that you first create a loan repayment plan so that you do not miss out on any payment.
Here’s How You Can Make Sure You Repay Your Business Loan On Time
Follow these steps to make sure you don’t default on paying off your business loan:
1. Make a repayment plan
If you want to plan your repayment, you will have to recollect all bills, pending loan records, loan amounts, EMIs paid, penalties (if any), and the interests.
This will help in calculating the amount paid and the amount which is left to be paid. After you know all of the above, you can set a new budget for the monthly expenses and plan to repay your debts accordingly.
2. Pay the higher interest rate debts first
Once you know about all your debts including the current ones, make sure that you pay the loans with higher interest rates first. This will also help in releasing the burden so that the remaining debts can also be paid quickly. It is therefore advisable to not take loans that have higher debts and choose loans with a low-interest rate instead.
3. Reduce your everyday expenses
Reducing or cutting down on unnecessary expenses is very important. Make a list of the unwanted expenses first and then eliminate them. This will help with the unnecessary spending that happens and is not required for the business.
This will also help generate extra income which will help with the loan repayment.
4. Try to renegotiate the terms and conditions
Try renegotiating the terms and conditions with the lender, as this can help decide on an affordable interest rate and restructure the EMI plan. This will help in cutting down the EMI or the interest.
The EMI calculator can also be used for calculating the repayment which will help in planning the budget well according to budget.
When making a loan repayment plan, decide the mode of payment you wish to use.
3 Modes Of Payment You Can Choose From To Repay Your Business Loan
1. Standing Instruction
Standing instruction is used when you have a savings account so that you can access this account to withdraw the EMI that you have to pay to them automatically. This process is simple and happens each month.
The date of withdrawing the EMI can be specified to the lender, the funds have to be there in the account to make sure any EMI is not missed so that the process doesn’t get affected.
2. Post-dated cheques
Post-dated cheques are given to the lender which the lender will submit to the bank on the specified date.
Unlike standing instruction, here the cheque has to be physically sent to the borrowers’ bank instead of the funds that are electronically withdrawn.
3. Electronic clearing service
Electronic clearing service option can be used when you do not have an account in your lender’s bank.
In this service also, the borrower will give the lender access to take the EMI amount from the account. The lender will then provide a consent form, signed, and canceled cheques to your bank who will then approve the transaction of EMI from your account.
To make sure you are paying the EMIs correctly, you need to make sure you are calculating them correctly.
How Are Business Loan EMIs Calculated?
EMI Calculation is basically done based on the Principal Amount, Rate of interest, and the loan tenure.
The EMI is directly related to the amount borrowed and the interest rate. If the amount borrowed is high, the EMI will be high and if a low amount is borrowed, the EMI will be low.
As the EMI is directly related to the amount borrowed and the interest, if a high amount is borrowed, the EMI will be high and if a low loan amount if borrowed, the EMI will be low.
A point to note here is that the interest rate affects the EMI. Two types of interest are there; fixed-rate or floating rate of interest. If you choose the fixed-rate, the EMI will be constant for the entire loan tenure. And if you go for the floating rate of interest, the EMI will fluctuate depending on the market rates.
How To Use An EMI Calculator?
EMI calculators are also a convenient way to calculate the EMI of the loan.
An EMI Calculator helps in figuring out the amount that you can pay each month. An EMI calculator uses 3 parameters, the amount of loan, the tenure of the loan, and the interest rate charged on the loan.
Input the values of these three parameters and you can get the amount of the EMI. Different permutations and combinations can be tried with the three parameters so that the exact Emi value is derived.
The formula used E = P x r x (1+r)^n/ ((1+r)^n-1), where E is the EMI, P is the amount you need to borrow, R is the rate of interest which is calculated on a monthly basis, instead of the annual rate of interest, obtained by using the formula r = (annual interest/12) x 100. And N is the duration of the loan in months.
Here are a few benefits of using an EMI calculator:
EMI calculation requires only 3 inputs i.e., loan amount, interest rate, and loan tenure. One only has to input these three values and the EMI amount is generated. Because of this, they are said to be user-friendly.
2. Error-free calculations
EMI work best in giving the correct values so that wastage of time for rectifying the errors can be avoided and can be invested in something more important.
3. Saves time
Since EMI calculators help you in knowing how much you need to pay each month, a lot of time can be saved. If you want to apply for a loan, you do not need to go out of the house while applying for a loan, since interest rates and EMI payments are already known to you.
4. Is cost-effective
No middlemen are involved in helping you decide on your EMI payments. You can easily do it yourself and there is zero cost involved in it. Many websites offer this service as free.
Therefore, EMI calculators help a great deal in letting you know if you are in the position to pay for the loan.
So, you have received your business loan, used it well, and repaid it on time too. But, you may need a business loan again in the future. A business is always growing, and its needs will evolve with time. Now, if you are looking to take a business loan for the second time, here’s what you need to do.
Do you want to calculate your EMI? Here is a quick calculator link.
Need A Business Loan Again? Here’s What You Need To Do!
If you need to apply for a business loan again, you will be wiser and may choose to do things differently. Here are some of the steps you need to take:
1. Conduct research on the lender
Firstly decide which lender you would like to avail the service from. You want to approach the same lender you had taken the loan from previously or a new lender. Going to the previous lender would save time, as all your KYC documents are already with them. The only things you will have to submit again is the ITR and bank statement.
But if you go for a new lender, you may get the loan at a lower interest rate.
2. Check your eligibility
If you go for the same lender, then too your business loan eligibility would be verified again because of the change in financials over time.
3. Business loan application and required documents
Another important thing to check is the terms and conditions of the lender so that you can be sure of going ahead with the process.
Once you check the eligibility and the terms and conditions, you can then apply for the loan. In the application, you will have to fill your personal and business details.
After you fill the application, the next step would be to upload the documents in a PDF format or as per what the lender asks.
4. Business loan approval and disbursement
After you fill the business loan application and upload the documents, the lender will then verify all of the information and the documents. If the application is approved, the loan amount will be disbursed within a few days.
The lender might also ask you to sign an agreement. Make sure you read it carefully before signing.
Always go for a second business loan, only if it is really required.
Taking a small business loan is important for the business when in need of funds and so is loan repayment so that the business faces no problem when applying for a loan again in future.
But what happens if you don’t repay your business loan?
Here’s What Could Happen If You Don’t Repay A Business Loan…
Not repaying a business loan is not just bad for your credit score and reputation, but it may have long term consequences too. You may not be able to get a business loan in the future. Additionally, these are the consequences you may face…
1. Notice/Reminder from the bank or NBFC
Most of the banks and NBFCs allow one or two late payments. If the borrower does not pay the loan amount in 3 consecutive months, the bank sends a notice to the borrower demanding the borrower to pay the EMI as soon as possible.
If the borrower defaults for more than 90 days, he/she is marked as a Non-performing Asset. And if a borrower becomes a Non-Performing Asset, it will close all of their options of borrowing funds in the future.
2. Legal action
If the borrower does not respond to the notice or reminders from the bank or NBFC, then legal action can be taken against the borrower.
First, a legal notice will be sent to the borrower, then the lender might also take the collateral in case the borrower is not responding.
Many banks and NBFCs impose a penalty for late payments or when the borrower defaults on any payment. But a penalty mostly is charged on the borrower in case of an unsecured loan where the lender does not have the option to recover the collateral. The penalty amount which is to be paid can be negotiated.
4. Asset given as collateral is affected
If the borrower is not able to repay the loan even after a legal notice has been sent, the last thing which is considered is the collateral, to recover the loan amount.
In case of a secured loan where the borrower has given an asset as collateral, the ownership of that asset will then go to the lender. The lender can then sell the asset to recover the loan amount.
Getting a business loan can only be of any use if you use it for the purpose you needed it in the first place. Additionally, you need to make sure you repay it on time so that your chances of getting a business loan in the future are not affected. Keep this guide handy if you ever need to apply for a business loan, to make sure you’ve got all ends covered.
If you are looking for unsecured business loans, contact Gromor Finance for loans at affordable interest rates and quick loan disbursal! We provide business loans up to Rs. 10 lakhs, if you are eligible and have all the necessary documents required for a business loan in place.