Nowadays most of the banks have a dedicated department for business loan requirements. This is created specifically to meet the financial needs of business. Getting a business loan in India is easy but finding best loan providers with low interest rates is a challenge. Of course, there are some really good websites like Finance Buddha now, who are highly service centered and ready to offer dedicated services according to the need of the loan applicants. In order to grow business getting a loan is a great idea, this is help the entrepreneur to make the business more profitable and competitive. Business loans can be used for various business needs such as to invest in new equipment, for starting up the business, to buy real-estate, finance.
Apart from letting your business to grow, a loan taken at the right time can work as a guard against any unexpected events. When taking a business loan many factors should be considered apart from the interest rates. All these put together can be called as the cost of a business loan.
• Loan Term offered by the Lender:
It is important to be aware that the longer a business loan is taken; higher will be the overall cost. However, it is still advisable for those who do not want to take too much pressure on the cash flow. Unless you have a really good income of which just 20% is required to repay the loan, don’t commit into huge monthly EMIs.
• Percentage of Project the Lender will Finance:
Do not thorough research to know what percentage of loan will be financed from the lender and accordingly calculate the cost associated to the same. If the percentage covered by loan is very less as compared to the cost, it is advisable to check loan from a different lender. Make sure of the comparison sites like Finance Buddha for these purposes and pick the best lender who offers maximum benefits at minimum cost.
• Any Hidden Fees:
Application fees and admission fees are charged by many lenders. It is crucial to consider these costs while calculating the total cost of taking a business loan. Some banks will share this information directly with customers however; it is the responsibility of the lender to make sure this information is collected before considering the total business loan cost.
• Repayment Flexibility:
Some banks offer lot of additional features/ flexibility to those who are taking a business loan. Suppose the business runs into difficult times, some banks will give an option to temporarily suspend the principal repayments thus giving lenience of just paying the interest rates. Apart from this, the other flexibility expected by most of the borrowers is the option to repay the loan ahead of the loan tenure- i.e. pre-closure without any penal charges.
Check if the loan requires a security or collateral for business loan. There are lots of banks who would be ready to offer loan even without collateral but the rate of interest in such cases will be high. Thus compare the benefits with the cost and accordingly make any decision.
• Processing Fee:
Apart from interest rates every borrower should bare the processing fees of the business loan. This is mandatory for all applicant but some banks offer zero processing fees to attract customers and as festival offers. Make use of such offers while applying loan as this is save about 2 percent of the total loan amount. Processing fees usually vary between 0- 4 percent from bank to bank.
• Pre-payment charges and Part Payment Charges:
These options are made available for borrowers to reduce their burden on monthly EMI. The charges applicable for pre-payment and part-payment are comparatively lesser than the interest that the borrower will have to pay on the outstanding amount. In most of the banks the charges for these ranges between 0-4 percent of the total outstanding loan amount.
Apart from these here are list of fees that will be charged on business loan if you decide to close your business loan:
• Appraisal fees if equipment or property are involved
• Credit report fees
• Applications fees
• Valuation fees if items like goodwill or inventory are involved
• Underwriting fees
• Documentation fees
• Origination fees
• Reporting fees
• Guarantee fees
• Loan servicing fees
• Loan insurance fees
• And, just general loan fees
Thus consider all these aspect of cost associated with business loan while applying for a business loan in India. Invest sufficient time to do a complete research of this topic before finalizing with a borrower for business loans.