8 Things to Avoid When Getting a Business Loan

Funds are essential to keep your company afloat in the competitive environment. It assists you in meeting small and routine business expenses as well as coping with some very large ones. However, most enterprises find it difficult to obtain financing from lending institutions.

The article will discuss all the possible reasons that restrict businesses from getting a business loan.

  1. Poor Credit Report

A credit report is one of those techniques that reflects your repayment capability. If you are undisciplined in repaying your dues and your records show it, you might be denied a business loan or will be provided with a high-interest rate loan. 

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You may also come across someone with a good reputation but credit concerns that are beyond their ability to resolve. One of such issues is having a zero credit history. Such issues refrain borrowers from getting an affordable business loan interest rate in India. As a result, start by cross-verifying your business and personal credit reports for any mistakes.

  1. Limited Cash Flows

A company’s cash flow demonstrates how much cash it has on hand. It is one of the first things financial institutions look at when assessing your financial health. If there is any flaw in your cash flow, getting a low business loan interest rate in India is tough.

To determine how much EMI payment your business can afford, consider using the below formula.

Debt Coverage Ratio = Net Operating Income from Business ÷ Total Annual Debt in Business

In case your financial health is not good, work on improving it. You may also create a financial planner to keep track of your business expenses. 

  1. Poor Business Plan

If you have a well-thought-out company plan and stick to it, you will be able to obtain attractive business loan offers. Nowadays, almost every business has a well-researched strategy. They have a detailed projection regarding their sales numbers and revenue. 

However, if you don’t have any plan or are unaware of how to prepare a solid business structure, seek help from a qualified business consultant. Always remember, businesses who are still finding their spot in the market will be provided with a low-interest loan based on a business plan. 

  1. Multiple Applications

Sometimes the necessity of funds is such that small businesses start panicking. In a rush, they start applying with almost every business loan lender. However, such conduct only deteriorates the business credit history. The credit bureau considers such applicants a red flag. 

Therefore, it is recommended that you must first assess your requirement. Once you are sure of the amount you need, check the various lender’s eligibility criteria. Pick the one that perfectly suits your profile and budget.

  1. Disorganized Papers

Before visiting the lending institution, you must run an eye over the set of documents. Make sure the list of essential documents mentioned on the lender’s website is in order. 

If your financial statements are not in order, ask your accountant or take the help of a Chartered Accountant to get it done. Also, be certain that all of your income tax and GST filings were filed on time. In case of any tax arrears or wrong assessment, work on sorting it first. 

In addition to the essential documents, you must also check that the application you are submitting is free from errors. Double-check the information you are mentioning on the form with your KYC and business documents. If you are facing any difficulty or are unsure of any section mentioned on the form, don’t hesitate to take the help of the branch officials.

  1. Not Consulting Your Team

Another common mistake that businesses make while applying for a business loan is not seeking expert advice. Loans are not available for free. One needs to pay the interest amount, processing fee, and other loan-related costs along with the outstanding principal amount. As such, if you require funds for branding and promotions, consult your marketing head. In case you need funds to acquire any start-up, consult your legal and financial head along with your business partner. 

  1. Not Exploring the Market

There are many business loan providers available in India. However, the interest rate and the offering differ slightly from one another. In addition to that, the eligibility requirements and the list of required documents also differs. 

Therefore, blindly following any lender just because your competitor has taken out a loan with them is not a good idea.

  1. Not Building Relationship with Your Existing Lender

Many businesses believe that funds requirements in business are not a continuous cycle. Given this, they are not sincere in repaying their existing dues. There are many borrowers who keep on transferring their outstanding loans from one lender to the next for a slightly better interest rate. However, all these conditions only lower your business loan approval chances. 

To Conclude:

Simply put, if you cannot demonstrate your ability to repay the loan, you will not be approved for a business loan. Additionally, the business loan interest rate in India also depends on the same factor. 


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