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Business Loan – Importance Of Choosing The Right One

business loan

Small businesses require funds for expansion, purchasing new equipment, or replenishing inventory. For such situations, business loans are a great source of finance which helps to resolve financial crunches.

With so many options available in the market choosing the right business loan can be difficult. Small business owners usually get confused while choosing the right one for their business.

Before opting for any type of business loan, there are many things borrowers (i.e. business owners) should do such as visit the websites of different loan providers, compare interest rates, and calculate EMI’s. A little due diligence will help them understand the benefits and limitations of different business loans.

In this article we are sharing some points which will make hunting for the right business loan easier:

  • How much loan do you require for your business?

While looking for small business loans, owners must be specific about how much loan they require. Having a fair idea of the loan amount helps to select the right lender. If the loan amount sanctioned by a lender is too small, then the business requirements will not be fulfilled. So before placing loan requests, it is important to know whether the lender can provide the desired loan amount to the business.

  • How much does the loan cost?

Usually while comparing loan options, people only compare the interest rates and not the total cost of the loan. Apart from interest rates the total cost of a loan is also an important factor while choosing a loan. It can be determined by asking the lender about the (APR) Annual Interest Rate. The APR is an amount that includes all the fees and other charges such as origination and documentation fee etc. In addition, business owners should also know about penalties associated with business loans to compare costs effectively.

  • What’s the mode of disbursal?

There are generally two types of loan disbursals. The first type is called an installment loan and the second type is called a line of credit. In an installment loan, the lender disburses the entire loan amount in one go to the borrower’s bank account. Whereas, in a line of credit the borrower can withdraw any amount within their maximum credit limit at any time. So, if the loan amount is required immediately than borrowers opt for installment loans and if money is required in smaller parts line of credit is the best option.

  • Is there any collateral?

Business loans are secured loans. To avail business loans borrowers may be required to collateralize any of their assets such as equipment, inventory, company office or residential property. In fact, some lenders also accept future revenue of the business (i.e. future sales or accounts receivables, etc.) as collateral for loans. If the lender does not accept your assets as collateral, it better to look for another lender.

  • Which lender to opt for?

The most common source of small business loans for entrepreneurs is banks. However, most banks refuse to give loans to startups/ small ventures due to their lack of credit history. This is where modern financing platforms like Neifi might be a better option for getting working capital finance. They offer several benefits such as low processing fees, easy loan disbursals, and renewals. Also, since everything is digitalized (i.e. online) the loan application procedure has become extremely simple and easy.

So, whether a business loan is required to meet operational expenses or pay wages to employees. Borrowers should be very careful while choosing a loan for their business. The wrong choice can worsen the business conditions, and they might not be able to pay off the loan. In addition, the inability to pay off a loan will lessen the credibility and eligibility of businesses to avail future loans. That’s why it is always wise to study and find the right loan option which can support the dreams of business owners and help them become established entrepreneurs.

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