Business needs adequate funds for survival and expansion, and more often than not, the financial requirement for sustaining a business requires a credit option. A company with a strong position and goodwill faces no hurdle in getting a loan approved. However, they face trouble in the selection of the best business loan. The organization faces bottlenecks in deciding what factors to consider while opting for a business loan.
In this article, we will throw light on some critical factors which should be considered before you apply for a business loan. Read the article and unlock the secret behind the best business loan. Learn and apply business loan today and make your wishes come true.
Let us start with an overview of what is a Business loan?
What is a Business Loan
A business loan is a specific type of loan which assists in either financing a new business or expanding an existing business. Every business requires an adequate amount for its functioning; these credit options help in meeting that amount and thus functioning of the company. The company is obligated to pay back the amount and the interest according to the terms and conditions mentioned. The amount can be used for funding a startup, advancing technology, hiring and training employees, maintaining inventory, or several other purposes provided it is legal.
Now that we are well versed with what is a business loan, let us, deep-dive, into the factors to be considered while opting a business loan.
Factors to be considered while opting a business loan?
1. Funding requirement
Ascertaining business’ financial requirement is the first and foremost factor for the selection of the business loan. An individual should try to estimate the number of funds required; it will help the business to not fall in the quagmire of underutilization of funds on which hefty interest is paid. Further, taking a loan lower than the requirement is also not advised as one will otherwise have to take another loan in a short duration. The individual should also be very clear about how he is going to utilize the funds. Taking a loan should always be based on thorough research rather than mere impulse.
2. Rate of interest
The rate of interest is one of the most important factors while considering a business loan. Rate of interest is an extra cost a person has to pay for opting a credit option, and this impacts the cost immensely. For example, X and Y required a business loan of Rs. 1,00,00,000 and they took from P and Q banks which were offering loan at an interest of 10% and 14%, respectively.
P’s interest amount – Rs. 10,00,000
Q interest amount – Rs. 14,00,00,00
Thus a minute difference in an interest rate may create a huge difference. But here’s a catch the decision to take a loan must not be based solely on the lower rate of interest. Sometimes loan with a shorter tenure and higher interest rate may be a better credit option rather than a loan with longer tenure and lower interest rate.\
3. Loan tenure
Loan tenure is one factor which must be paid special attention. An organization should choose a loan tenure which suits their requirement. A short tenure loan will allow a company to repay the loan faster and keep the future income for the business, but it will lead to higher EMIs wheres as long tenure loan will provide the business with an option to lower the reduce the EMIs burden.
Read more ; Conditions in Which a partial EPF withdrawal is possible.4. Other important factors
Other essential factors which if not significant but still matters in deciding loan options are:
- Loan approval speed
- The flexibility of loan repayment
- Processing fee.
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When one’s business is in need of funding, opting the right business loan can be overwhelming. Comparing through the types of business loans is often puzzling and time-consuming. One can make choosing a business loan easier by understanding the critical factors that go into finding a loan that’s a good fit for your business.
Important factors for considering a business loan are:
- Loan Amount: Individual must compute the approximate amount required for the business. Generally, higher the loan amount longer is the tenure.
- Interest Rate: The rate of interest is also a significant factor in deciding the tenure of the loan. High-interest rate means higher payback amount and EMI.
- Loan tenure: The company should choose a loan tenure which suits their requirement. A short tenure loan will allow a company to repay the loan faster and keep the future income for the business, but it will lead to higher EMIs wheres as long tenure loan will provide the business with an option to lower the reduce the EMIs burden.
5. Other factors are :
- Loan approval speed
- The flexibility of loan repayment
- Processing fee.