InvestorQ : How do I choose a lender for my business loan?
shivangi Arora made post

How do I choose a lender for my business loan?

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shivangi Arora answered.
3 years ago
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Choosing the right lender is of utmost importance when taking a loan. Any kind of loan requires you to pay attention on various aspects such as interest rates, loan eligibility, loan tenure, prepayment charges, etc.

For a business loan, experts advise seeking a loan from a non-banking financial company (NBFC) and not banks. This is because many applicants do not qualify when applying for a business loan in a bank. The reason for this is that the bar is set too high when it comes to credit scores and financial history.

Let’s try and understand this a little. Businesses are looking for loans because they need money. However, since the credit crisis of 2008, banks have tightened their loan requirements making qualifying more difficult, if not impossible, for some small business owners.

You should consider taking a business loan from a bank when:

- You have excellent credit and can meet the bank’s application requirements. If you satisfy both these requirements, then you can avail of one of the lowest interest rates of all the funding options.

- You wish to further establish your credit history, so that the next time you need money, you can qualify for a larger amount.

- You are not in a hurry to get your funding, as loans from banks can take 30-60 days to process.

You should consider taking a business loan from a non-banking finance company (NBFC) when:

- You have had credit challenges and ups and downs in your business. This is because NBFCs are more flexible with their requirements vis-à-vis banks.

- You do not have a detail business plan charted out. The reason for this is banks require a very intricate business plan outlining your business, tax and bank records and marketing plans, which NBFCs aren’t too stringent about.

- You lack valuable collateral or cannot afford to risk personal assets. As a small business, banks consider you a risk, so a significant collateral is required in case you cannot repay the loan.

- Your business is relatively new or a start-up. Banks usually require three years of business financial data for a loan application to be considered.

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