Key things to consider while taking a business loan

08 MARCH, 2021

Over 20 million small kiranas, traders, and mom-and-pop stores across India drive the retail economy. They connect big brands to consumers, offer customised service, and often even sell on credit. Besides entrepreneurial zeal and hard work, these businesses need capital to flourish. They may need money to add more inventory, manage working capital, make renovations, expand or build a warehouse, or just add more workforce.  

A business loan can be a simple solution for such needs. However, loan products can be complex and expensive, making it challenging to choose the right loan and the right lender for a business's specific needs. If you are on the lookout for a business loan, here are some key questions you should ask yourself and your potential lender.

At the borrower’s end

  1. How much money do you need?
    While many business owners seek to get as much finance as possible, that may not be the best approach. Having a good estimate of the loan requirement also lets a potential lender know that you have thought through the purpose and utility of the loan. Also, remember there’s a cost associated with borrowing, which will directly impact the interest you pay and the tenure of the loan.

  2. What does your credit score look like?
    Considering most small businesses operate as sole proprietorships, your credit score is critical to how your business loan application is evaluated, the amount of loan you are eligible for, the applicable interest rate, etc. Ensure that you have a healthy credit score (ideally above 750) that will improve your chances of getting a loan and allow you to negotiate better terms on the interest rate. If you have small outstanding loans or credit card bills, clear them before applying for a loan.

  3. Are your books of accounts/ paperwork in order?
    Make a file with all relevant paperwork handy, such as business licence, lease agreements, important contracts, tax returns, etc. Keep all your ledgers and profit-and-loss statements updated. Having all your documents in one place makes for a stronger loan application and can drastically cut down the turnaround time.

 At the lender’s end

  1. How competitive are the interest rates?
    Compare the interest rates offered by various lenders and shortlist the ones that seem the most affordable. See if you can make a soft loan application to understand how the rates can improve specifically for your loan. Also get a clear understanding of all fees and charges – processing fee, foreclosures charges, non-utilisation charges, etc. – so there are no surprises in store.

  2. How easy is it to get a business loan?
    Ease of application and a hassle-free process is important for small business owners who do not have the time to run from pillar to post for the loan while leaving their business unattended. So, shortlist lenders who make the process easier, are prompt, and give you good customer service in the future.

  3. Will it be necessary to furnish collateral?
    Collateral or a guarantee can be a major roadblock when it comes to loan applications. It is advisable to approach progressive banks and financial institutions that offer unsecured business loans at equally competitive interest rates without having to worry about arranging for collateral.

  4. Can the payment schedule be customised?
    Every business is different, so you need a lender who gives you the freedom to customise your repayment schedule based on your expected cash flows. Having flexibility over the EMI can be a big advantage, especially in times of uncertainty.


Last Words:
Timely and adequate access to financing can fast-track your business goals, and Kotak Mahindra Bank understands this. That is why we offer collateral-free loans that range from Rs.3 lakh to Rs.75 lakh and can be customised for any and every business need. 

Quick loan disbursal with minimum paperwork allows you to make swift business decisions. Additionally, you have access to a digital overdraft facility of up to Rs.6 lakh that can be credited in your account within 72 hours for those critical funding needs.

Kotak Mahindra Bank’s Business Loans come at reasonable interest rates and with flexible repayment options (up to 48 months). It gives you the absolute freedom to manage your business' finances while focusing on improvements that are important for your business and your customers.

 

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. and its employees. We make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article does not constitute legal advice. Kotak Mahindra Bank, its employees and the contributors are not responsible or liable for any damage or loss resulting from reliance on or use of any information contained herein.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.