These are the 10 questions you should ask before getting a business loan.
Question 1 - Is the loan required?
This is the most pertinent question one must ask before availing of a business loan. While a business loan is a requirement, the monthly interest pay-out is a liability, which adds to the other expenses. All financing options should be explored before opting for the business loan. The market is replete with many financing methods. Thorough research is a must before jumping into the loan bandwagon.
Question 2- What are the types of business loans that are available?
Business loans are of many types. There are unsecured business loans, new business loans, instant business loans etc. Selecting a business loan requires a lot of research. However, before you come to this stage, look at your business and evaluate its financial capacity. It is also one of the pertinent questions you need to ask, as the applicant of the business loan.
Each loan has its features. To crack the best deal, the applicant must be meticulous in his or her research. A business loan in India needs a lot of verifications and ratifying and the applicant has to be ready for that. Also, banking institutions do provide interest payment discounts. There are festivity discounts and special offerings and businesses can look out for these opportunities.
Question 3 - How good is the credit history of the business?
Business and personal loans are based on the credit score of the applicant. One of the primary reasons why loan applications are rejected is because of poor credit history. An encouraging credit history reflects the financial prudence of the business and the individual while on the contrary anything less impressive will lead to the rejection of the business loan application.
Question 4 - Can I afford collateral?
A business loan with collateral is always an attractive proposition for a financial institution. However, there is a bigger risk, in the event of failure of repayment. The financial institution can confiscate the collateral. But, if the applicant is certain that the loan will be repaid in time, then having collateral can be rewarding.
Question 5 - Will I be able to afford the monthly repayment?
Every business loan has interest rates. This calculates to different monthly interest payment. Business loans interest rates are usually not small amounts and so are their monthly payments. A cost-benefit analysis is a must before availing of one.
Question 6 - How beneficial will the business loan be to the business?
This is in continuation of the first question, of whether a business loan is at all needed. Once the applicant has evaluated the costs, the business would be exposed to, it is prudent that a move is made. Many aspects are needed to be taken into account before asking for a loan.
Question 7 - Is there a business plan?
You are availing of a business loan san a business plan. The chances are that you either do not need a business loan or your business loan application will be rejected.
Question 8 - Is there a plan in place to effectively use the loan?
Once the business loan has been availed, is there a plan to effectively use it. The loan needs to work as a force multiplier and not an added expense.
Question 9- Have you taken care of the revenue channels?
Liquidity is one of the main issues for businesses. In the absence of it, the entire premise will collapse and the business will end up with a liability of a loan. The revenue channels need to be taken care of and with the help of the MSME loan, expanded.
Question 10- How skilful are the current resources to meet future challenges?
This is important since it allows the applicant to understand how the skill set of the company improved upon. The business loan will act as a catalyst.
Lastly, business loans are essential but also are added expenses. A thorough thought needs to be put across before one is availed.