Apart from having a great idea, securing start-up capital is crucial for setting up a successful business. While building up a company, funds are required to cover salaries, overhead expenses, cost of product development, etc., apart from the set-up cost.
The first step towards funding is acquiring a business loan, and with numerous options for startup business loans, one must ensure to opt for the right one.
If your dream is to become a successful entrepreneur with a stellar business idea, going through the below-mentioned points would help you choose the best business loan to fund your start-up.
Table of Contents
Steps to choose the right business loan
Step 1: Determine how much capital you require
Formulating a business plan is the first step when looking for capital from financial institutions. Only with such a plan in place can an entrepreneur assess the exact quantum necessary. A business requiring Rs.5 lakh versus a start-up needing Rs.25 lakh would likely need to apply for separate credit facilities.
Step 2: Look for government loan schemes for start-ups
The Pradhan Mantri Mudra Yojana is one of the most popular schemes that provide sufficient working capital to small businesses. Under this initiative, companies can seek financial assistance under one of three sub-categories, namely, Shishu, Kishor and Tarun. The maximum loan amount differs for each of these, ranging between Rs.50,000 and Rs.10 lakh.
Choosing from such schemes has several benefits, including competitive interest charges, along with other repayment assistance.
Step 3: Ensure you fulfil all eligibility criteria
Each financial institution follows distinct criteria when it comes to sanctioning business credit. You must meet or exceed each of these parameters to ensure that you end up with the best deals.
Maintaining the company’s credit profile is the most important factor in this regard because it determines creditworthiness. Fulfilling such requirements also helps borrowers avail of additional benefits, such as pre-approved offers.
Also Read : Brief Journey for Loan Types in India
For instance, financial institutions such as Bajaj Finserv provide pre-approved offers which help in simplifying and accelerating the lending process. These offers are provided on various financial products like business loans, personal loans, and more. Borrowers can check their pre-approved offers by providing a few details such as name and contact number.
Step 4: Considering the rate of interest
With the market flooded with numerous lenders offering start-up business loans, one must always compare interest rates from different lenders before acquiring a loan. Keep in mind that the interest rate quoted by a particular lending institution depends on several factors, such as the borrower’s credit profile, business vintage, turnover, etc.
While an individual cannot influence the last two factors, improving his/her credit rating can help secure business credit at favourable terms.
Step 5: Being aware of the repayment terms
Several aspects come into consideration while repaying a business loan, and these aspects can save or cost a considerable amount to borrowers. This includes repayment time, schedule, facility of paying off a loan early or waiting for it to mature, etc.
Potential entrepreneurs willing to become successful business owners often find themselves in a fix while deciding how to opt for the right loan out of the several options for start-up business loans offered by the NBFCs.
The information mentioned above would act as a perfect guide to working capital loans. Before approaching any particular financial institution, check all eligibility parameters and documentation requisites carefully.
Additionally, go through all the terms and conditions of a business loan and know the interest rates and associated charges beforehand. Doing so will let you compute the total cost of the loan and whether you can repay the same with minimum hassle.
