There are many situations when a business needs a sudden infusion of substantial funds and in such times, a loan may be the most sensible option for the business owner. However, it is important to ensure that the loan is available at good terms and conditions so that repayment is viable for the business without placing too much of a strain on its liquidity. Ensuring that the business loans interest rate is low enough to keep the overall cost of borrowing within budget is very critical here. Take a look at some factors that make your loan for business in Pune costlier and at times, even make it difficult for you to find a lender.
1. Credit history:
One of the first things a lender looks at when a loan application comes to them is the credit history of the applicant. A poor credit history tells the lender that the borrower is a high risk.
Your credit report is an indicator of how well you have fulfilled your past financial responsibilities so a poor credit report shows that you have failed your obligations. A lender sees this as a red flag and he will increase the business loans interest rate to compensate for the higher risk he takes on with you. A very poor credit score may prevent the lender from approving your loan outright. A credit score of at least 720 ensures that you are a good risk for lenders and that you get approvals quickly and with good terms.
2. Cash flow:
The lender gauges how your business is equipped to repay the loan on time. To evaluate this, they look at your business cash flow. This tells them how much liquidity you have to fulfil your financial obligations. This is also a measure of your business’ overall health.
If cash flow is very severely restrained within the business, then there is a chance that the business operations may be limited soon or even come to a crashing halt. That is disastrous for both the business and any lenders who have loaned funds to it. Poor cash flow situation will lead to lenders viewing you as a higher risk and charging high interest rates while a healthy cash flow makes you an attractive borrower.
3. Loan applications:
Making multiple loan applications is a red signal for lenders. Like with an individual applicant, the lender also checks your current debt situation for the business. If you already have too many debts that you are paying off, then you present a poor risk to the lender. The chances that you may be unable to repay is a good possibility, in their view.
If you are planning to take several loans to cover different expenses at the same time, then this may work against you very badly because each lender will view you as a risky borrower with too much exposure. Applying for one large loan for business in Pune may be the smarter option in such situations.
4. Business plan:
The success of a business hinges very heavily on the focus and disciplined approach of the business owner. This is evaluated from the business plan that you have for your firm. If the business plan does not seem sound or if it lacks clear direction or goals, the lender gets the impression that you are unsure of how you wish to lead the business in the coming years. This is obviously not a good sign for any lender who needs to know that you have a concrete plan to take your business towards better profits and growth.
Getting an expert to help with your business plan is a great investment before you apply for a loan for business in Pune. A structured, well laid out, clear business plan tells the lender that you are organized and goal oriented and all set to put your business on track for success.
One of the most unusual yet most common factors that can derail your loan application process as well as present you as a poor risk to lenders is disorganized loan application. Take the time to prepare a proper loan application, filling in all relevant columns correctly, accurately and back it up with all necessary documents.
This organized approach tells the lender that you have thought about the loan well enough and are fully prepared to take on the responsibility. It also saves time because a properly filled, the document-backed application can be verified easily and quickly and taken to the approval stage as soon as possible.
These are some of the factors that impact both your ease of getting loans sanctioned as well as the business loans interest rate. It is in your best interests to keep these in mind before you start applying for loans so that you can get a loan quickly and that too, at the most attractive terms available in the market.