Hey there! Want to start a new business? Then, you’re most welcome here! This article highlights all the essential points which you should go through before you get a business loan apply. As you know, this loan comes with or without collateral. Most institutions lend you the amount even without security.
However, some require you to mortgage your property. Both these are classified as secured and unsecured loans. You can repay these either through a consolidated fund or in instalments. The lender charges a fine in case of any discrepancy in the repayment. Hence, you need to consider some essential factors before availing a business loan.
5 Cs To Look Into Before Applying For A Business Loan
1. CIBIL Score
Credit Score or CIBIL Score relates to the financial reputation of the borrower in the market. It helps banks or institutions analyse how capable you can obtain a loan. It also enables them to judge whether you could return the loan.
For example, the lender would ask you to check your credit score if you’re applying for a loan against land mortgage. The purpose of the same is to avoid future risks. Please make sure that your credit history is not poor. It will cause the lending institutions to refrain from lending you money.
While it’s not a 100% accurate indicator, it’s still important. Your credit score must be at least 750 or above. You may not be able to get a business loan apply if you have a bad credit background. It doesn’t matter even if you fulfil other criteria, like having a profitable business or surplus revenue.
2. Capacity
The capacity of your start-up is directly proportional to its capability to repay the loan. The lenders use a DTI (Debt-To-Income) Ratio method to judge it. Here, the total debt is divided by the total income, and the resultant is multiplied by 100.
You’ll likely get a business loan if your DTI score is lower. Keep a goal of having it between 30-40%. For this, try to increase your revenue or start cost-cutting.
3. Collateral
If you’re willing for a large loan, you must opt for secured one. For that, you need to keep collateral with the lending institution. These may be land, property, or stocks. Note that the lenders offer up to 80% of the collateral value. You have to generate the rest on your own by other means.
4. Conditions
Documentation or paperwork is crucial for every business aspiring to take a loan. These are conditions and are subject to change depending on requirements. These external conditions may be geographical or economic.
5. Capital
It refers to all the physical or tangible assets that your organisation uses to pay off debts. These may be your sum in the bank, investment, or other properties that the lender can acquire. Note that accounts receivable don’t fall into this category.
Conclusion
Various financial institutions provide different types of business loans. Hence, selecting the type depends on your business requirement is essential. In search of a business loan against land mortgage? Visit Finway FSC now, which is the leading financial institution in Delhi. You can also avail of unsecured loans here at affordable interest rates.
