How To Compare Loans For Small Business?
There are numerous loan lenders working in the market. They all offer collateral and collateral-free business loans at different eligibility criteria, document, and terms and conditions. With plenty of options available, the business owner has the option to choose the best loan product for his small business. And for this, he must compare loans on the basis of a few factors. In this write-up, we have talked in length about the few factors upon which you can compare business loans and choose the best one for your business.
Leaving the confines of job and starting your own small business is one of the best feelings in the world. It finally gives the freedom to the businessman to implement his ideas. He is no longer answerable to his senior management and is his own master. The feeling of earning an extra profit for himself motivates him to work hard and put extra hours without getting tired. However, nothing, in reality, is as rosy as it seems.
With power comes responsibility. The business owner can no longer pass the tasks to his subordinates. And any wrongly done task can hit his business hard. The business is responsible for everything and has to manage everything in the right manner as one wrong step will impact the employees working for him as well. The businessman must ensure the liquidity of the business in order to ensure the business is running smoothly.
Whenever the business faces a liquidity crunch, it is the businessman’s responsibility to arrange for funds and keep the business running. Otherwise, the competitors will get the advantage of this situation. The liquidity crisis can be due to delayed payment or when some urgent expense shows up. In this situation, a collateral-free business loan is what the business owner needs.
The business owner gets access to funds to meet his business-related requirements and he can repay the loan in easy monthly installments, without stressing the working capital. The loan facility is offered by many small business owners. And so, there are several loan options for the businessman to choose from.
Advantages of Collateral-free Business Loans
If you are looking to avail business loans without security but cannot make your mind, then read the following advantages of unsecured business loans that will certainly help you in making your mind.
- No Collateral: To avail this type of loans for business, there is no need to offer collateral. This makes availing unsecured business loans in India hassle-free and an ideal option for contingency situations.
- Repayment Tenure: The repayment tenure for business loans without security is between 6 months and 24 months. This ensures that the business owner can repay the loan
- Flexibility: The business owner is free to use the business-related amount in any way as per his discretion. There is no need to inform the loan lender about the end use of the money.
- Processing: The business loans without collateral are processed quickly since no collateral is involved. In most of the cases, the loan application is processed within a few days.
- Eligibility: The amount that will be sanctioned by the loan lender depends on the credit profile of the borrower. The creditworthiness of the borrower is the only eligibility criteria along with the CIBIL
What Factors to Consider while Comparing Loans for Business?
The advent of technology in the financial sector has enabled loan borrowers to compare loans conveniently in a hassle-free manner. But, to compare loans, the businessman must know the factors on which he must compare the loans. This will help in ensuring that he only chooses the best small business loan.
Read on to know the important factors to compare loans:
- Annual Percentage Rate: The APR determines the annual cost of a loan. This is the most accurate way of calculating the cost of the loan. And the business loans must be compared on the basis of the cost they will incur. Sometimes, a business loan with a lower interest rate has higher APR and one with a higher interest rate has a lower The business owner must understand this and choose the one which has a lower APR. This will help in reducing the annual payments while repaying loans.
- Term & Conditions: All lenders have different terms and conditions. It is important to always read the loan agreement in detail and comprehend all the clauses. The businessman can also ask for clarification from the lender. The businessman must sign the dotted line only after understanding every point.
- Prepayment Charges: Usually, the lenders charge some penalty on the prepayment of the loan. However, repaying the loan before its closure can save a lot of money to be otherwise spent on interest. So, the financial institution that offers loans with no foreclosure charges is the right And this also is a good factor on which you can compare loans.
- Repayment Tenure: A flexible repayment tenure is important as a specific repayment schedule does not suit every business owner. A flexible repayment option will allow paying the loan in EMIs that suit your pocket. Although the motive should be to repay the loan at the earliest, the EMIs must not be so high that you cannot afford them.
- Credit Score: The credit score is an important eligibility for the business loan. The loans for business can be compared on the basis of the credit score required by the lender (every lender has different requirement). You must only proceed with the loan application if you meet the credit score requirements of the lender.
- Document: Like eligibility criteria, every lender has a different requirement for business loans. You must search for the same requirement and determine if you can meet it or not. If you do not have all the documents required by the lender, then you must search for other loan products offered by another lender.
Availing a loan for a business is one of the biggest responsibilities for a business owner. So if you decide to avail one, you must compare all the loan products available in the market and choose the best one for you to make a sound decision.