Are You Making These 7 Business Loan Mistakes?

Running your own business is the biggest responsibility where the business owner handles multiple tasks all at the same time and works for extended hours just to make sure that the business is on the right path. In the initial stage, the business owner’s own funds must be enough to meet the business’s monetary requirements, but there would come a time when his personal funds would not suffice. However, the need for funds would remain the same.

In this situations, availing a business loans is the best option as it can help the borrower fulfil his business’s fund requirements on time, without affecting the cash flow.

What is an MSME Business Loan?

An MSME business loan can be described as the credit facility offered by various financial institutions for small business owners. The fund so availed in the business loan is used to meet the financial needs of the business and can be invested in the business venture only. The business loan for MSME can be secured (with collateral) or unsecured (without collateral) in nature.

7 Most Committed Mistakes While Applying for a Business Loan

The rapid integration in the financial service sector has made the business loan application process hassle-free for the borrowers. The borrowers now have access to various financial marketplaces online and offline and can apply for an MSME loan without security online or offline.

However, in the present scenarios, the finance sector has gone through a lot of turmoil. They are adopting a strict approach towards processing the MSME business loan application. So, it is important that you file your business loan application judiciously avoiding any mistake. The mistakes often committed by the borrowers while applying for a business loan are:

1. Although the business loan criterion may be different across different lending institutions, the CIBIL score is an important business loan requirement that you must meet. Ensure that you meet the minimum CIBIL score for business loan eligibility criteria. A CIBIL score of 750 minimum is said to be an ideal score. So, if your CIBIL score is lower than the minimum CIBIL score, do not apply for the business loan and instead work in improving your CIBIL score.
2. Do not go for the business loan lender who offers business loan at the lowest interest rates. This is one of the biggest mistakes which is often committed by the borrowers. While the business loan interest rates he is charging might be low, the other charges like processing fee may cost you more. So, do not just go for low interest rates for a business loan but also ask the lender about all other charges that you would incur while availing a business loan.
3. Conduct a detailed survey on the bank and finance sector before finalizing the business loan lender. Get the knowledge of the various business loan offers and then avail the one that best suits your financial needs. You can easily get access to this information online.
4. Make sure you repay all your other loans on time. The repayment track report and bouncing charges will surely have an effect on your online business loan approval.
5. Most borrowers do not read the fine print of the business loan agreement in detail and often miss out on important details. So, make it a point that you read the business loan agreement in detail and do not rush into signing it. Also, question the lender if you do not understand any point.
6. Assess your needs carefully and then only apply for an MSME loan. It is often seen that the small business gets sanctioned the business loan amount more than what it actually requires. Taking a business loan, paying interest rate, and then keeping in the bank account does not any sense. Only avail the amount that you seriously require.
7. Opting for a long repayment tenure is another mistake mostly committed by the borrowers. Do not just opt for the maximum possible tenure because the lending institution is offering you. The higher your tenure would be, the higher your final payable amount (plus interest) will be. There are many business loan lenders who offer flexible repayment tenure ranging from 12-24 months, you can opt for it.

The wisest decision in case of facing a paucity of funds is availing an SME business loan as it helps to ensure the expansion of the small business in a time-bound manner.

Rahul has over 7 years of experience in digital marketing. Prior to joining ZipLoan.in , Rahul worked at Content Mart and was instrumental in ensuring a 110% year on year growth of the business. Before this, he worked at Jabong as a part of the International Business Expansion team which focused on Overseas Markets. In the initial phase of his career, he worked with autoportal  where he achieved a 65% traffic scaling. Rahul holds a Bachelors degree in Technology.