Introduce to Small Business Loans
Though several financial institutions have made the process of availing funding hassle-free and more borrower-centric, the cost of borrowing still does not bode well with many small businesses. However, with a few financial strategies in place and some useful tips, businesses can secure a sizable business loan at excellent repayment and best interest rates.
Such a practice will help businesses access funds readily and repay the same without going through many hassles. To achieve it, entrepreneurs should look for some useful tips to successfully lower business loan rates.
Top tips to make loans for business more affordable
Here’s how individuals can avail an affordable loan for business –
Tip 1 – Improve credit profile
The first thing that business owners need to do is improve their credit profile. Such a profile reflects the applicants’ credit history and how capable they have been in dealing with their debt. Ideally, business owners with a clean credit profile, i.e. zero defaults and timely debt payments are more likely to secure better service terms.
Tip 2 – Increase the CIBIL score
An individual’s CIBIL score reflects his/her creditworthiness and associated risk profile. In other words, the applicants’ credit score reflects their repayment capability and the risk they pose in terms of default. That is why applicants with a higher CIBIL score of over 750 are more likely to meet business loan eligibility and secure affordable rates of interest.
Tip 3 – Ensure financial stability
Financial stability indicates that a business owner can repay the business loan amount within the given tenor. This puts financial institutions at ease as the risk of lending to such an applicant is significantly less.
Tip 4 – Leverage business vintage
The higher a firm’s business vintage, the better its chances of securing a high loan value at a lower rate of interest. Ideally, leading financial institutions set business loan eligibility wherein applicants must have a business vintage of at least 3 years to qualify for the loan. Which means, businesses with a vintage more than that are better positioned to negotiate lower interest rates and flexible repayment terms with the lender.
Tip 5 – Avail a loan for a short tenor
Loan repayment tenor influences the interest rate significantly. Generally, when applicants apply for the long term, they attract a higher rate of interest because of the associated risks. On the other hand, shorter tenor attracts a lower interest rate and proves useful in more than one way.
For instance, it helps to repay the loan faster, and the overall cost of borrowing a business loan is relatively less. To further understand the relationship between loan tenor and interest rate, one can use a business loan EMI calculator and pick a combination that matches their repayment capacity.
Tip 6 – Leverage the business’s overall profitability
A business that generates steady profit indicates a better repayment capability. This helps them avail credit at favourable terms and affordable rates of interest. It brings down the overall cost of borrowing successfully. Hence, a business can leverage their profitability and improve their scope of negotiation with their venture’s turnover and sustainable profitability.
Tip 7 – Have a solid business plan
A well-rounded business plan and strategy favour business owners to avail credit and fund their operational requirements. Ideally, a well-crafted business plan that includes risk management strategies and prospects helps financial institutions ascertain the applicant’s plan of action and gauge repayment capability throughout the tenor. Business plans that indicate that applicants will maintain sound financial health in the coming years work in favour of their loan approval. Also, it helps them bargain for better rates from the lender quite easily.
Business owners must note that lenders levy an interest rate on the loan amount based on the business’s nature. Some financial institutions tend to categorise businesses under priority and non-priority sectors. Usually, the companies that fall under the first sector are more likely to avail better rate of interest and repayment terms than the latter. This is why it is crucial to determine which sector your business belongs to before negotiating interest rates with your lender.
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Another effective means of availing a business loan at a low-interest rate is applying to a lending institution like Bajaj Finserv that extends credit at competitive rates. Above all, such leading financiers are transparent about the additional charges, making it possible to more effectively ascertain their loan affordability.
They also extend pre-approved offers to customers to make the process of borrowing more streamlined and less cumbersome. Such customised offers are available on multiple financial products, including personal loans and business loans.
Besides meeting the eligibility criteria and improving creditworthiness, individuals should also make it a point to keep all the documents required for business loan handy. It will help them meet all the requirements readily and facilitate timely access to affordable business loans without much ado.