Two types of corporations offer business loans: Banks and non-banking financial corporations (NBFCs). Borrowers are not required to provide any collateral to obtain a Business Loan from a lender.
Individuals who are self-employed or do not hold a professional
position may be eligible for a Business Loan from a non-banking
financing organization or a bank.
For those who have applied for a
business expansion loan earlier, the procedure appears time-consuming
and complex due to several prevalent misconceptions. Processes for
company loans can vary widely, as can those for other types of financing.
Some frequent misconceptions to avoid about getting a Business Loan:
1. You Must Have an Impeccable Credit Record
While securing a loan, a common misunderstanding that small businesses face is that they must have perfect credit. Small companies with a less than stellar credit history can still get loan approval.
Many small-business owners believe they must have a clean credit history to get a loan from a bank. One of the most popular misconceptions about Business Loans is that they're expensive. The likelihood of securing a Business Loan increases with a solid credit history. Still, you don't have to have a perfect credit history to gain the attention of lenders like banks or NBFCs.
With a higher credit score, getting a loan is easy, and more options are available. Even if your company's credit rating isn't stellar, you shouldn't rule out getting a loan based on that.
For example, firms working to improve their credit score may qualify for a particular type of loan. If you're desperate for money, it's worth looking into these types of loans, even if you'll pay a higher interest rate.
2. Loan Application Is a Time-Consuming Process
Back in the day, getting a company loan meant gathering multiple
documents, visiting your local lender, and patiently waiting weeks or
months for approval. Things have significantly changed lately.
Enough information about your business is required when applying for
loans, but the process isn't quite as time-consuming and complicated
as you may expect. Thanks to recent technological advancements,
applications can now be completed quickly and easily online.
Sometimes, you may be able to have the funds in your bank account the
very next day.
Numerous websites allow you to check pre-approved
loans, including a list of potential lenders and their interest rates.
A small business owner may simultaneously apply for a Business Loan
online with multiple lenders and have the money placed into their
business account within a few days.
3. Only Huge Commercial Loans Are Approved
Almost all new businesses require financial assistance to get off
the ground. Furthermore, the claim that new enterprises are ineligible
for bank loans is untrue. There are numerous lenders specializing in
providing startup loans to enterprises with no or limited credit
history.
Although the lender will consider your credit rating
during the application process, you should be aware of this. If you're
looking for a Business Loan, don't be hesitant to shop around and
compare offers from several lenders.
Lenders like to give out
larger loans because they know they will get more money back in the
long run, despite what many people think. Before you begin the
application process, you should know how much you are required to
borrow and each month how much you can afford to pay back.
A
common misconception among small-company owners is that Business Loans
are only suitable for those who seek a substantial sum of money. Many
non-banking financing organizations and micro-loans providers focus on
small business owners needing Business Loans. In contrast, traditional
banks prefer large-ticket Business Loans that are more profitable.
As NBFCs and micro-loans have developed in India over the past decade,
small-ticket Business Loans are available to entrepreneurs who need
more money than they have available. There is no purpose in applying
for a large-ticket Business Loan if a small business owner does not
require it.
4. You Must Provide Collateral to Obtain a Business Loan
Putting up collateral when applying for a Business Loan is
intimidating for many small business owners. It makes it harder for
the business owner to secure a loan.
However, there are
exceptions to the rule, and collateral requirements are not a
pre-condition for receiving this loan. In many cases, unsecured small-Business
Loans are available. Company Small-business owners can access
various financing options, including credit cards, merchant cash
advances, and unsecured enterprise loans.
A small business owner
does not need collateral for these options to secure a business
expansion loan. The applicant may be required to provide a
personal guarantee in place of that. The borrower is responsible for
repaying the loan amount and any interest accrues.
Business owners
that default on their loans or miss payments is responsible for the
entire sum. Depending on the financial and business situation of the
business owner, this could be a good deal for the applicant.
Conclusion: Final Thoughts!
No Business Loan application will ever be a walk in the park. But it's not like putting together a rocket ship. Loans depend on individual circumstances. Several factors, including business requirements, finances, credit history, plans for the funding, etc., influence loan approval and the amount of loan sanctioned.
