Whether someone is trying to open a new business or looking to expand operations for the existing one, there is a need for financial support; it is very crucial. These requirements could include the need to purchase new machinery, payment of salaries, getting your working capital back on track, upscaling of operations, and so on. One of the most common ways to avail financial support is through availing a business loan.
There are several options available for getting a business loan in India – banks, private lenders, online lending platforms, and Non-Banking Financial Companies (NBFCs). The main question is which loan lender to go for to avail a small business loan. A query is how to select the correct and suitable lender for the loans.
In case you make a wrong choice, you may end up taking a loan that hits the business health terribly and fails to fulfil the purpose. This is why it is vital to comprehend the business loan requirements—doing proper research before availing a loan is a key here.
There are several factors upon which the decision is based. The most important is the interest rate, and most borrowers are always tempted to go for the lowest business loan interest rate.
However, this should not be the only thing to affect the decision. You must also consider the other things like repayment options and other policies of the loan scheme. A commercial loan EMI calculator can also be used to understand the business loan that would suit your small business the most.
Factors which can help you get a small business loan approved easily:
- Credit Score: It is easy for an applicant with a good credit score to get a business loan approved at the best rate of interest.
- Existence Period: A business has to be functional (business vintage) for more than two years at least to be eligible for a loan – whether from a bank or an NBFC.
- Monthly Revenue: A key factor to any loan is the return it gets on investment which showcases its profitable nature. Consistency is a crucial factor here. A typical business has variable revenue all the time. However, consistency plays a vital role in deciding its chances of getting a loan sanctioned. The repayment capability and daily average profitability are evaluated by lenders to decide whether to sanction a loan or not.
- Collateral: Collateral refers to the promised asset (security) that is offered to a bank to avail a business loan. Collaterals can be in the forms of assets, equity, equipment, etc.
The current interest rates on business loans in India varies between 12% and 20% (flat) and 21% -27% (reducing), be it with the banks or NBFCs. The interest rate is evaluated based on several factors – individual’s income, business activity & sector, credit score, etc. If a lender evaluates higher risk in lending money, then a higher rate of interest is charged. But in the present scenario, where the number of banking and non-banking financial institutions in India is growing rapidly, interest rates are more competitive and thus, low.s
The interest rate for MSME loan varies anywhere between 18% and 28% depending on the financial and business profile. Any MSME in India can easily apply for a loan at a bank or NBFC. However, NBFC would be a better option solely for the flexibility it provides and that too without asking for any collateral asset.
Getting a business loan from a bank is tougher as compared to an NBFC because of the strict policy banks follow. The eligibility criteria that a business has to fulfil to be able to apply for a business loan with banks is very difficult. The documents required for the verification process is a very long list, and it is a time-taking task to collect them.
Another problem with bank loans is that the entire process is prolonged. It ultimately results in a delayed disbursement of the money. This is where NBFCs have taken the lead over banks with its swift and easy-to-avail business loan. As a result, more and more small and medium-scale businesses are moving towards these NBFCs.
