Things You Have to Decide Before Taking a Business Loan

Business Loan
A business loan is a funding tool which you can avail of if you want to start a new venture. It is also useful if you’re going to expand a small business to reach greater horizons, interested in purchasing new equipment, acquiring more inventory, planning to diversify, or purchase or renovate infrastructure. Most of the banks and NBFCs offer online business loan application facility, which makes the procedure fast and straightforward.

Business Loan Documents

You have to provide the below-mentioned documents while applying for a business loan:

• Application Form: Duly completed loan application form with a passport size photograph.
• Valid proof of identity and age: Aadhaar Card, Driving License, PAN Card, Passport, and Voters ID Card.
• Address Proof: Electricity Bill, Lease agreement, Passport, Ration Card, Sales Tax certificate, Telephone Bill, Trade license.
• Proof of income: Bank Statement of Last 2 Years.
• Financial Documents: Income tax return for the last two years along with the latest Bank statements for six months, Profit and loss report, and balance sheet for the previous two years audited by a C.A.
• Employment type: Self Employed (Private Ltd. Co. and Partnership Firms), Self Employed Individuals – Professionals, Self Employed Individuals – Non Professionals.

Things you Should Consider Before Taking a Business Loan
The decision to go for a business loan needs a lot of thinking and analysis as it could be the most important financial commitment for you. You’re planning to take on debt that could be your liability for years to come. You will be responsible for its repayment even if your business fails.

Here are some factors which you must consider before taking a business loan:

How Right are your Strategy and Business Plan?
Before taking any business loan, you must have a rock-solid, viable business plan and right set of strategies. It is not only a pre-requisite for loan approval but also ensures the smooth and systematic running of your business.

• What is your Purpose for Taking a Loan?
  Take out a business loan if it is essential for your business. A loan to purchase new machines or inventory, renovate infrastructure, or raise working capital are good reasons for taking one. However, your loan should not cover expenses like an employee party or meet.
• What is your Credit Score?
  Your personal and your business credit score will affect your eligibility for getting a business loan. Better the credit better would be the rate of interest on your business loan. It will also decide whether your loan will be a secured loan with the need for a guarantor, or an unsecured one. A credit score of 700+ is generally a good score.
• Have you Checked and Compared all the Available Options?
  Shopping around will help you find multiple lenders with an array of offers with respect to the business loan interest rate of on the loan, the loan amount and the repayment time. You can pick the one that best suits your needs.
• Will you be Able to Repay your Loan on Time?
  It would help if you had a clear idea about your total investment, cash flow, and expected returns for your business. You need to make regular repayment for your loan on time, failing to do so will entail the risk of penalties, high fees, damage to your credit score, or even the seizure and acquisition of your assets by the lender if it is a secured loan.

Taking small business loans is useful, but it can be dangerous if misused. By asking yourself the above-mentioned simple questions and giving honest, viable and logical answers to them can help you in the right direction.