Considerations While Applying For A Business Loan At A Financial Institution

Often businesses suffer losses due to unavailability of funds for operations, expansion, grabbing new opportunities. The financial institutes have a supply of funds which is not very close to the amount demanded in real. Thus, the financial institutes have various criteria to grill the entrepreneurs before funding them. Earlier the tradition financial institutes mainly used to check the financial record of the business and the future prospects. But with the advent of the Fintech, the scenario has become more regulated and strict as well. So, for availing a business loan from a financial institute, you need to consider the following factors.

What do you offer the financial institute? – A business project has many facets; a financial institution will only consider your project when it can generate money for them. Most of the loan applications are turned down due to unrealistic anticipations, analysis of future financials and illogical business plans. So, the first thing you need to be prudent is what you want to do. You need to have a clear idea of what business you are going to do, what projects you already have in your pipeline to show to the bank. You also need to make assumptions about expenses and incomes on a realistic ground not imaginary. The risks are also needed to be evaluated and based on that the profit generation capability of the project must be built. Often people applying for a business loan miss this ‘risk’ part which gets them into the risky zone of rejection by the financial institute.

Market knowledge and Financial Capacity: Your financial capacities will be judged by your financial status and credit history. This is to ensure that whether you are prudent enough to use the funds availed for business to generate income or not. In this, the market knowledge will help you to impress the bankers. As with the correct facts and figures of your business projection will imply your knowledge of using the funds rightly.

The processing time of business loans: The time of loan application processing depends on the financial institutes individually. But on an average, it takes around few weeks as they verify all the financials of the company, the business plan and also evaluate all the legal documents. In the case of Fintechs, the time duration is shorter due to all digital processing, and thus you can avail the loan faster. The stringent regulations of the traditional financial institutes increase the number of days for approval of the loan application. Once the loan application gets approved, it takes a few days to get the credit in your account.

How and when to send your application? – The time and day and the process of sending business loan application matter a lot. You need to visit the traditional financial institute in person for submitting the business loan proposal. Thus you need to be aware of the dates when the financial institutes are closed, their working hours and when the managers are free to talk about your proposals. Most of the government financial institutes will make you sit for long hours before they will listen to your proposals. The best way to proceed nowadays is by applying using the online systems.

The requirement for collateral securities: The public sector banks mainly ask for collateral securities even if the business generates regular income. This is again because of their strict and rigid rules and regulations. But mostly in the case of business loans, as the amount is huge, collateral securities are required. There is also scope for hypothecation of the asset you purchase with the loan amount. You can also keep other assets as a mortgage for availing the business loan. But it is always better to keep the personal and business assets different so that in case of winding up, your personal assets are not affected.

Are there any penalties? – The financial institutes offer business loans against the certain rate of interest. Besides that, if you default to pay the EMIs on time, there are certain penalties to be charged on and above of the interest amount. No one wants to be in debt but at times, due to a certain situation like bad credit, loss in business, EMIs are missed. For this, you need to pay penalties, and before applying for business loans, you need to be aware of this. Often, there are financial institutes which charge penalties for prepayment of the loan amount as well. This is because of their loss of the amount of interest they anticipated to earn on your loan.

So, before applying for a business loan from a financial institute, you need to be aware of all the things mentioned above. This will not only help you avail the loan easily but also in retaining a good credit score for future business loan applications and great business prospect.

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