Business – The term is very common to every one of us and people try it keeping something in their mind for betterment. The reason behind starting a business could anything – family supporting, improving the lifestyle, making extra money, better future of future generation and much more. Whether you are going to start a small or huge business, you may need a loan from your bank to support your business. Here, few tips are given for you about what all you need to do for availing a loan.
Important things you must know before seeking a bank loan for business
Bank loans are beneficial to boost up your business capital since it provides you a platform to prepare thoroughly since bank loans will examine you and your business level closely before it lends you a loan. The sole criteria for providing a small business loan is likewise with all the lenders i.e. they closely investigate your performance and how you do plan to invest your money in business.
Important facts about commercial bank plans for small businesses
- The commercial bank provides loan by amortizing the requested amount. This refers to an aggregation of the principal amount and interest and then dividing into equal payments for repayment of the money per month over a given period of time. The interest rate is usually fixed but they tend to fluctuate in some banks.
- It is most beneficial to avail short term loans that have repayment period one or less than one year. Additionally, it is also easy on the part of lenders to lend such loans instead of long-term loans. Short term loans are helpful in overcoming the problems of immediate expenses like payroll, stocking etc. Also, it attracts higher rates of interest.
- There are different banks available for different small businesses. One of the most frequent is the intermediate bank that lends money to small businesses for buying equipment like computers, printers, photocopies and other necessary equipment. Mostly the loans offered by intermediate banks have less than three years period of repayment.
- Other than short-term, there are long-term loans for small businesses from commercial banks. Long term loans are given when lenders are assured of settled business of small companies, after having reached to a certain required level. These types of loans are secured by the property, equipment and other essential assets that are capable of raising the level of business in upcoming years.
A few things you must fulfill to have the business loan approved
- For a small business owner to have his/her loans approved by the lenders, he/she must follow some guidelines. One must show the consistent cash flow statement of his/her business. One must disclose all his/her books of accounts.
- One needs collateral to avail long-term loans in future. The value of the collateral is matched against both the dollar adding interest. This will assure the lender and reduce his/her risk of getting back all his money with interest.
- In case you have just started with a fresh firm and want to avail loan, commercial banks are going to first see how much of money are you putting into it by yourself. In case you are totally being dependent on a bank loan, they might not lend you a loan. Additionally, you must also keep savings with you for unexpected occurrences. So before you borrow a loan, you must keep a backup for the assurance of not being too dependent on commercial banks for loans.
- One of the most common and major consideration while borrowing money is to check your financial status whether are you creditworthy. Being the owner one must examine his/her creditworthiness, on the basis of which a commercial bank may or may not be willing to give you a loan and if they grant, it will be on very strict terms.