For entrepreneurs who have embarked upon building their brand in a chosen industry, the road to growth is practically never-ending. To keep meeting the demands of their customers and to maintain a profitable position amidst continual competition, they must relentlessly focus on the quality that makes them unique. They also need to stay in sync with the ongoing developments in their domain, seek ways to bring innovations and expand their business.
To materialize their plans for growth, most business owners look for a suitable commercial finance. Thanks to the convenience provided by digital technology, applying for a loan is not a cumbersome affair anymore. A quick search on the Internet brings up the business loan interest rates charged by various banks and non-banking finance companies (NBFCs).
The digitally active NBFCs, referred to as FinTech companies, have also become popular suppliers of a commercial loan. Numerous SMEs, including startups that are as young as a year old in their domain, have availed business loans from FinTech lenders. Traditional entrepreneurs too are delving into their commercial lending policies to understand the unique advantages they can derive from this source of finance.
If you believe that your business is progressing in the right direction and have a framework for its growth, this may be a good time to weigh your options and apply for a business loan.
Here is a short and safe route to the commercial finance that you seek for materializing your business development plan:
1. Opt for the online process only on a genuine lender’s website
You would not want to enter any of your personal details and certainly not your financial details on an unsecured website. As the process to apply for business loans gets simpler, many organizations may be sending you unsolicited emails with attractive offers. The interest rates on some may be unbelievably low and others may be promising you loans on very easy terms. Do not be misled into something that may cause you to regret later. Make sure that the organization you choose for your commercial loan is registered, gets reviews from verified customers and has a trustworthy, encrypted website with https domain. Check its credentials from more than one source and talk to the customer service team if required.
2. Gather the right information about all possible charges
When you get commercial finance from an institutional lender, you will naturally pay interest on the sum borrowed. Usually, the advertisements for loans show the interest rate in prominent fonts but do not talk much about the processing fee and other associated charges. However, you do end up paying multiple costs of a loan through your EMIs. To get an idea of what you will be expected to pay each month, use a business loan EMI calculator if it is provided on your chosen lender’s website. If this tool does not have the columns for the processing fee and loan insurance charges, ask the lender directly about them and then add the figures to the total amount that you will be expected to pay along with the interest and principal. This will give you a better idea of your actual EMIs. Also, check for any prepayment penalty that must be paid if you clear off the debt earlier than the predetermined tenure. This is a certain percentage of the total amount and differs for various lenders.
3. Check if the loan is secured or unsecured
If you are familiar with the loan policies of conventional lenders, you know that you will be asked to hypothecate an asset such as owned business premises or any other immovable property as security. Loans from most banks are backed by collateral and even though the borrower can continue to use the pledged asset, he or she does not have the rights to sell it till the borrowed amount is paid back and the hypothecation ends. If you do not want to pledge any property to your lender, you can simply opt for the unsecured loans provided by the FinTech companies.
4. Go for a short-term loan wherever possible
To minimize the interest outgo on your loan repayments, it is advisable to take the funds for the shortest possible tenure. Some organizations have policies that prevent them from lending small amounts for short tenures. You may be asked to stretch your loan term to at least three years. Once again, the FinTech companies make more adjustments in this direction. If you need a small amount and are willing to repay the loan in one year or less, the FinTech lender will issue the loan for your venture. Merchant cash advance is one of the frequently sought-after loan products that a FinTech provides, and it generally has a tenure of 6 to 12 months.
5. Check your business eligibility criteria and scan the necessary documents
Having understood the loan options available for you from an organized lender and the amount you are required to pay back including all the charges, you need to check the list of documents necessary to be sent with the application. These documents may vary slightly according to the kind of commercial loan being applied for, but their purpose is to establish the credibility of a business. Lenders usually ask for paperwork verifying the age of business, its current holding of assets-liabilities and bank statements.
On choosing the online mode, you only need to send the scanned copies of the documents. At times, banks ask borrowers to come in person with some of the documents. The FinTech organizations, on the other hand, only need the soft copies to assess the business’s standing. After the submission of application, this decision is a matter of minutes.
6. Alter your EMIs and pay back early when you can afford
In addition to applying for a short-term loan, another strategy to decrease the interest payments is by altering the EMIs whenever feasible. Once you have received your business loan, you should have the freedom to repay it through any installment. Fortunately, there is such a provision when the loan comes from a FinTech lender. You can ask for an increase or decrease in your EMIs as per your business earning. It is, however, prudent to make the most of any sudden increase in your revenue and repay a higher installment amount monthly or pay off the outstanding amount in lump sum.
By employing these six steps during your search for a commercial loan, you will be able to open the doors for the next stage of your business development. This will ensure that you have a head start on your way towards growth before your competitors do.