Business loans can help your business grow and support your plans for business expansion. It can be used to purchase equipment, invest in technology, and a host of other measures.
Types of Business Loans
Business loans can be granted for various business purposes, and each purpose has a different loan classification. Following are some common types of business loans:
- Loan Against Property
It is a type of secured business loan where the borrower can avail a large sum for business using an existing property as security.
Since this is a secured loan, it is available at a lower interest rate.
- Working Capital Loan
This type of small business loan can be availed for any short-term requirement. A working capital loan essentially means using the loan to finance your business’s everyday needs.
- Equipment Loan
If you want to update your existing business equipment, you can get an equipment loan. This loan can be availed for purchasing new equipment for your business as well.
- Women Business Loan
This type of loan is specifically for women entrepreneurs. Women business owners can use this loan type to start a new business or expand their existing business.
The interest rate on this loan is generally lower.
5 Factors To Consider For Business Loan
When you’re applying for a business loan, there are some factors you need to keep in mind so that you get a good loan offer that meets your business needs.
Here are some key considerations when applying for a business loan:
- Collateral Requirements
One of the first things to check for when availing of a business loan is if the loan requires any security or collateral.
Collateral is commonly required for longer tenure loans, such as a loan for purchasing a business property. It can include your accounts receivable, pledges like equipment or any other fixed assets), real estate, or personal and third-party guarantees.
- Repayment And Prepayment Terms
You can compare business loans online to compare loan schemes and check repayment terms. This way, you can select the loan that best suits your purpose. Repayment terms include checking the loan tenure, interest rate, and EMI payable.
If your business generates good returns, you can prepay your business loan. So, when applying for such loans, check the prepayment terms, and if there are any prepayment fees you need to pay.
- The Credibility Of The Lender
When checking out business loan offers, an important thing to consider is the lender’s credibility. You need to ensure the lender has a good financial standing. Browse the lender’s website, check their social media accounts, and read the customer reviews to determine their credibility.
Flexible repayment is the goal of your business loan. You should compare repayment terms from different lenders to get the best deal.
Also, before finalizing the loan offer, talk to your lender about your options in case you default payment or are unable to make payments. If you have a good credit standing, lenders might consider giving you leeway as long as you can prove you can repay the loan in full.
- Interest Rate
Lastly, it’s always a good idea to ensure that you get a good rate of interest on your loan. Try opting for a loan that is longer in tenure, so your EMI burden is lesser.
Another option is to get a secured loan since they usually have lesser interest rates.
The majority of your loan repayment is towards interest, and once the interest is paid off, you start paying the principal.
- Business Loan Eligibility
When opting for a business loan, you should have an existing business or a solid plan for developing a business.
You can compare different business loans online to understand better what loan suits your purpose and check whether you are eligible for the loan.
Some common eligibility criteria for a business loan include the following.
- The minimum age to apply for a business loan is 21 years, and the maximum is between 60 to 65 years.
- The business must have made a consistent profit for at least two years.
- If the business is based on proprietorship or entrepreneurship, the owner should have a good credit history.
Your business loan eligibility, coupled with your business profits, will determine the loan amount you can avail of. It is important to compare various schemes before you settle on a loan offer to get the most out of your business loan.