Starting a business may be easy. But running it successfully requires meticulous planning and the courage to confront all the challenges. Of all the internal and external factors that govern the success of a business, finance is an important constraint for most entrepreneurs.

With an exponential growth in the number of entrepreneurships in India, there is a wide range of formal and informal finance options available to keep the business running. Business loans provide easy access to funding but effective money management is also essential to prevent the business from an unexpected fall. Hence, it is good to prepare ahead of time.

Given below are a few tips that can be useful for entrepreneurs in India while taking a business loan:

• Purpose of the loan: The first question that every borrower should ask themselves is “Why seek a business loan?”. Even for business loans, borrowers should decide the purpose of the loan. For example, whether the loan is for setting up a new business or to overcome the shortage of cash to cover day-to-day expenses. Accordingly, the applicant can choose between a start-up loan or a working capital loan.
• Choose the right lender: While picking the lender, borrowers should evaluate who is offering the lowest interest rate, what are the loan repayment terms, what is the processing time of the loan and are there any additional charges on the loan.

Some banks lure customers with complicated loan offers. To get the best loan deal, business owners must compare different lenders on different parameters. For example, a business owner earns a profit and decides to utilize it to foreclose the loan to save the interest on future EMIs. Usually, most banks and financial institutions charge prepayment fees in case borrowers choose to foreclose a loan. But there may be one or two lenders that are willing to waive the foreclosure charges, helping borrowers to save more.

• Loan amount and loan tenor: Borrowers should remember that they need to return the entire amount that they borrow along with the interest. Hence, loans should only be used for necessary expenses because an extra penny can add up the total cost of borrowing, including the interest rates and fees.

Before borrowing it is important to decide the right loan tenor that can help to pay timely EMIs, without any stress on personal finances. The length of the loan tenor should be selected in lieu of factors like monthly income, total loan amount and loan interest rate.

• Avail tax benefits: To boost MSME and startups, the government of India, through banks and NBFCs offers different loan schemes like the MUDRA loan, and Start-up India scheme. Borrowers availing of these special loan schemes can take advantage of different benefits and allowances like tax benefits under IT Act, etc. Borrowers who take general business loans can also avail tax benefits on the interest paid.
• Check the eligibility criteria online: Lenders offer loans to customers who categorically qualify the eligibility criteria. To avoid the chances of facing a rejection, borrowers should first check the eligibility criteria of banks. It can help entrepreneurs have an idea about the lenders and their requirements. For example, there may be some banks who may not be interested in offering unsecured business loans to startups. In such cases, business owners may need to put up some collateral.
• Keep the documents ready: After business owners successfully qualify the eligibility criteria, they can start gathering all the documents that are essential to process a loan. Lenders ask for supportive identity documents and financial proof of applicants to verify the details. Financial statements like certificate of income, balance sheets, cash flow statements, Income Tax returns, etc. help lenders to assess the financial health of the business in question.

Lenders can go online and check the list of KYC documents and financial statements essential to get a loan. Keeping these documents in place helps in speedy loan approval.

• A viable business plan: Besides documents, business loan lenders will also require a business plan to know if the business idea is sustainable in the long run. It should have clear and comprehensive goals with an idea of how the business benefits the owner. If required, entrepreneurs can seek professional help.

Conclusion

Loans are indispensable during financial crunches. You can borrow money for business from traditional financial institutions like banks and NBFCs to even peer-to-peer lending or crowdfunding platforms.

But to avoid disappointment it is ideal to weigh the pros and cons of borrowing and not make any hasty decisions. Borrowers should first evaluate the need for a loan. It is good to keep the debt as low as possible and plan a timely repayment strategy that can help to build a good credit score.

At the same time, business owners willing to take loans should do a thorough market research on business loan providers. It is good to choose a lender that offers the best loan offerings.

IIFL Finance, one of India’s top NBFCs, offers a variety of business loans with easy-to-meet criteria. The loan approval process is simple requiring minimal documentation. The company offers flexible repayment options with competitive interest rates to entrepreneurs looking to manage and grow their businesses.

For know more about Business Loans or apply for a Business Loan, visit IIFL Finance