In the current economic environment, marked by inflation and uncertainty, it has become challenging for a business to maintain good cash flow. You might sell goods to your customers on credit terms of 90 days but can be getting the payment only after 120 days. You can not press your client too much for making payment as you might lose out the customer to a competitor. But you need to take care of your expenses and payments also. So, what would you do in such a situation?
Similarly, you might have an excellent business opportunity in front of you that could help you enhance your profits significantly, but you might not have enough funds to put that idea into action. What would you let the opportunity pass or plan to do something about it?
The best option for you in such a situation is going for a business loan with a bank or a non-banking financial corporation.
What is a business loan?
A business loan is a collective term used to represent the various types of loans that are extended by financial institutions for business clients only. Depending on nature and purpose, these loans could be secured as well as unsecured. With the banking sector under severe stress of NPAs, frauds and bad loans, it has become tough for business owners to get a loan approved by them. In such a situation, Private companies (NBFC’s) offer a viable alternative.
What are NBFC’s?
NBFC’s or Non-banking financial corporations are business finance loan companies that offer different types of loans and financing options to their customers including business loan without security but cannot engage in banking activities. The activities of business finance loan companies are not regulated by RBI, and as such, they have greater autonomy in their working.
Why should you consider applying for a loan with NBFC’s?
NBFC’s offer an excellent alternative for meeting your financing requirements if you do not wish to apply with a bank or feel that your application for a loan with the bank might not be successful. Here are some reasons as to why you should consider applying for a loan with a private company: –
Relaxed Criteria: – These companies have a relaxed criterion when it comes to establishing your eligibility for a business loan. They can overlook certain discrepancies and process your application if they are satisfied with your business model. If your credit score is below the desired level, they can still approve your application but may charge a high-interest rate.
Better Service: – These companies offer you a better level of service during the whole process. You need not visit their branch for anything; their representative will come to your office and complete all the formalities. You get regular updates regarding your loan application status on your email and mobile, and their customer care department is also highly responsive.
Flexibility: – These companies offer you a significant degree of flexibility in terms of loan amount and repayment. They have the power to increase their LTV ratio to 90% and can also offer you more amount than your security if your profile satisfies their requirements. They also provide business loan without security. You can also get EMI holiday or flexible repayment options through their line of credit offerings.
Things to consider before applying for a loan with a private company
Before you proceed ahead with your loan application with any of the best small business loan companies, there are a few factors that you must consider carefully, such as: –
1. Rate of Interest
Always research around in the market regarding the prevailing rates of interest and only finalise a lender after you are satisfied that you are getting the best deal. Remember to negotiate well with the lender for a reduction in the rate of interest. Remember, any small decrease in the rate of interest translates into huge savings later on.
2. Fees and Charges
Always ask for information regarding various charges and fees applicable to the loan. Make sure that you are satisfied with their foreclosure or pre-payment charges. Make sure that the cheque bouncing charges are not too exorbitant and the late payment charges are also reasonable.
3. Terms and Conditions
Make sure that you have read the terms and conditions related to the loan agreement. Take your time and carefully go through the fine print carefully to ensure that there are no conditions that are detrimental to your business.
4. Repayment capacity
Carefully analyse your monthly EMI payments for the amount you are seeing and see to it if you are able to afford that much EMI. If you feel that the EMI burden would be too much, you should look for either low rate of interest or go for a more moderate amount.
5. Secured or Unsecured
Secured loans usually have lower interest rates as compared to unsecured loans. But if you do not have any collateral, then you must opt for an unsecured loan. Consider these aspects and then decide if you want a secured loan or an unsecured one.
Applying for a small business loan with any of the best small business companies could be beneficial for your business, but you must conduct thorough research before taking a final decision.