For entrepreneurs who have built their brand in a chosen industry, the road to growth is practically never-ending.
To keep meeting their customers’ demands and maintain an advantageous position amidst continual competition, they must relentlessly focus on the quality that makes them unique.
In addition, they also need to stay in sync with the ongoing developments in their domain, seek ways to bring innovations, and expand their business.
Most business owners look for suitable commercial finance to materialize their growth plans. Thanks to the convenience provided by digital technology, applying for a loan is not a cumbersome affair anymore.
A quick search on the Internet brings up the business loan interest rates charged by various banks and non-banking finance companies (NBFCs).
The digitally active NBFCs, referred to as FinTech companies, have also become popular suppliers of commercial loans.
Six Steps to a Loan for Business Expansion
Numerous SMEs, including startups as young as a year old in their domain, have availed business loans from FinTech lenders.
Traditional entrepreneurs, too, are delving into their commercial lending policies to understand the unique advantages they can derive from this source of finance.
If you believe that your business is progressing in the right direction and have a framework for its growth, this may be an excellent time to weigh your options and apply for a business loan.
Here is a short and safe route to the commercial finance that you seek for materializing your business development plan:
#1. Opt for the online process only on a genuine lender’s website
You would not want to enter your details or your financial information on an unsecured website. As applying for business loans gets simpler, many organizations may be sending you unsolicited emails with attractive offers.
On some, the interest rates may be unbelievably low, and others may be promising you loans on straightforward terms. Do not be misled into something that may cause you to regret it later.
Make sure that the organization you choose for your commercial loan is registered, gets reviews from verified customers, and has a trustworthy, encrypted website with an https domain. Check its credentials from multiple sources and talk to the customer service team if required.
#2. Gather the correct information about all possible charges
When you get commercial finance from an institutional lender, you will pay interest on the borrowed sum.
Usually, the advertisements for loans show the interest rate in prominent fonts but do not talk much about the processing fee and other associated charges. However, you end up paying multiple costs of a loan through your EMIs. To get an idea of what you will be expected to pay each month:
- Use a business loan EMI calculator if provided on your chosen lender’s website.
- If this tool does not have the columns for the processing fee and loan insurance charges, ask the lender directly about them and add the figures to the total amount you will be expected to pay along with the interest and principal. This will give you a better idea of your actual EMIs.
- Check for any prepayment penalty you must pay if you clear off the debt earlier than the predetermined tenure.
This is a certain percentage of the total amount and differs for various lenders.
#3. Check if the loan is secured or unsecured
Suppose you are familiar with the loan policies of conventional lenders. In that case, you know that you will be asked to hypothecate an asset such as owned business premises or any other immovable property as security.
Loans from most banks are backed by collateral, and even though the borrower can continue to use the pledged asset, they do not have the right to sell it till the borrowed amount is paid back hypothecation ends.
If you do not want to pledge any property to your lender, you can opt for the unsecured loans provided by the FinTech companies.
#4. Go for a short-term loan wherever possible
To minimize the interest outgo on your loan repayments, taking the funds for the shortest possible tenure is advisable. Some organizations have policies that prevent them from lending small amounts for temporary assignments.
You may be asked to stretch your loan term to at least three years. Once again, the FinTech companies make more adjustments in this direction. If you need a small amount and are willing to repay the loan in one year or less, the FinTech lender will issue the loan for your venture.
A merchant cash advance is one of the frequently sought-after loan products that a FinTech provides, and it generally has a tenure of 6 to 12 months.
#5. Check your business eligibility criteria and scan the necessary documents
Having understood the loan options available for you from an organized lender and the amount you must pay back, including all the charges, you need to check the list of documents necessary to be sent with the application.
These documents may vary slightly according to the kind of commercial loan being applied for, but their purpose is to establish the credibility of a business. Lenders usually ask for paperwork verifying the age of a company, its current holding of assets-liabilities, and bank statements.
You only need to send scanned copies of the documents by choosing the online mode. At times, banks ask borrowers to come in person with some of the papers.
The FinTech organizations, on the other hand, only need soft copies to assess the business’s standing. After applying, this decision is a matter of minutes.
#6. Alter your EMIs and pay back early when you can afford
In addition to applying for a short-term loan, another strategy to decrease the interest payments is altering the EMIs whenever feasible. Once you have received your business loan, you should have the freedom to repay it through any installment.
Fortunately, there is such a provision when the loan comes from a FinTech lender. Therefore, you can ask for an increase or decrease in your EMIs as per your business earnings.
It is, however, prudent to make the most of any sudden increase in your revenue and repay a higher installment amount monthly or pay off the outstanding amount in a lump sum.
By employing these six steps during your search for a commercial loan, you will be able to open the doors for the next stage of your business development.
This will ensure that you have a head start on your way towards growth before your competitors do.
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