Financial constraints are among the biggest challenges for most businesses in India. Starting a business requires a significant amount of capital. Now there are various ways to raise money for a business. New companies often struggle with securing a loan due to a lack of experience and credit history. While traditional lenders may turn you down due to your lack of revenue, other options are available for securing funding. New-age lenders like SMFG India Credit offer business loans to even new businesses at a lesser interest rate.
Let’s delve deeper to learn more about how to get a business loan at a low rate of interest.
What is a Business Loan?
Before we jump into how you can get a business loan at a lower interest rate, let’s understand what business loans are. A business loan is a credit product designed to help businesses obtain funds for managing different business activities. Depending on the nature of the business activity, various types of business loans are available. Many business owners take working capital loans to manage their daily operations. Similarly, there are other types of business loans for fulfilling different objectives.
Tips to get business loans at a lower rate of interest
Established businesses don’t find getting a loan or obtaining funding from other sources challenging. New businesses often struggle to obtain funds, even with a business loan.
Here are some tips to follow if you want to obtain business loans at lower rates of interest.
If traditional banking institutions have turned you down, it’s time to knock on the doors of Non-Banking Financial Institutions (NBFCs). These lending institutions have minimal terms and conditions that can be easily met. In addition to this, they also have dedicated online portals to offer loans. You can simply visit their website and apply for a business loan online. It’s essential to check the lender’s eligibility criteria before applying for a business loan.
Maintain a Good Credit Score
Your credit score is a 3-digit number representing your creditworthiness in the market numerically. A higher credit score means a more creditworthy borrower, whereas a lower credit score denotes a less-creditworthy borrower. It is essential to determine your eligibility for a business loan. If you have a low credit score, you may find securing funding from traditional lenders difficult. There are ways to improve your credit score. One such way is by paying your bills timely and not defaulting on EMIs.
High debt levels can also hurt your credit score. Paying down your debts as quickly as possible is important. In addition, a high debt-to-income ratio can make lenders doubtful about your business plans. If you have any existing debts, clear them before applying for a business loan.
An unsecured business loan is an ideal deal. If you are not getting an unsecured business loan, you can opt for a secured one. To obtain a secured business loan, you need to pledge collateral. If you default on the loan, the lender can seize the collateral to recover their losses. Using collateral can increase your chances of securing a loan, even if you have lesser revenue to show. Real estate property is an ideal collateral that most lenders accept. In some cases, the accounts receivable also act as collateral for the loan.
Find a Co-Applicant
A co-applicant is a person who agrees to repay the loan if the borrower is unable to do so. If you have low revenue, finding a co-applicant with a solid financial history can increase your chances of securing a loan. It is crucial to choose a co-signer carefully, as they will be responsible for repaying the loan if you are unable to do so.
If you are having trouble securing a loan, it may be best to start small. The approval of your loan is also contingent on the loan amount you apply for. Instead of applying for a large loan, secure a smaller one first. This can help you establish a relationship with the lender and build your credit history. Repaying this small amount timely can help you get a better deal and a higher loan amount later. Then, as your business grows, you can apply for larger loans.
Securing a business loan at a lesser rate of interest can be challenging, but it’s not impossible. If you don’t have enough revenue to show, focus on how to improve your cibil score and reducing debts and small loan amounts. Applying with a reputed NBFC like SMFG India Credit can help you get the loan quickly.