Looking to obtain a Business Loan? Avoid these 7 mistakes.
As opposed to securing approval for a personal or home loan, obtaining consent for a Business Loan demands a more rigorous effort. The instances of Business Loan applications being declined significantly surpass those that are approved. To simplify matters for you, we have compiled a list of seven Business Loan mistakes to steer clear of and increase your chances of successfully securing a Business Loan in India.
Common Business Loan Mistakes in India
Lacking a Business Strategy
A common loan mistake is not having a business strategy. A compelling business strategy is essential to convince the bank of one's capability to manage the company effectively. This plan should encompass comprehensive details about the business type, the products or services offered, marketing strategies, financial needs, and the intended purpose of the loan. Additionally, the business plan should specify the loan amount, delineate how the funds will be utilized, and outline a strategy for generating additional income through the investment. With a well-structured business plan, lenders can gain confidence in the applicant's dedication to advancing the company's growth.
Negligence in Accessing Credit Score
The most common small Business Loan mistake in India is not paying attention to one’s credit score. Effective financial management extends to both the personal and business realms. Before approaching the lender, it's crucial to be cognizant of your personal credit history and address any issues promptly. If there are problems, understanding their origins and taking corrective measures is essential. The bank needs assurance that the loan provided will be utilized for business expansion, and a track record of responsible personal financial management serves as a persuasive indicator.
Demonstrating financial discipline is a pivotal factor influencing the overall success of your business.
Also Read: What Can You Do To Improve Your Credit Score?
Lack of Organization
Another common business mistake is lack of organization. The rejection rate for over two-thirds of all company financing applications underscores a prevalent issue: inaccurate financial data. Among the leading causes of a bank dismissing a business owner's loan application is the provision of misleading financial information. Falsifying your credit score can result in a diminished loan amount, assuming the lender approves any funds at all.
A loan application serves as a tool to showcase a company's capacity to meet debt obligations promptly. To substantiate financial stability and the ability to make consistent monthly payments, it's imperative to include documents such as tax returns, bank statements, a comprehensive overview of investments and assets, and income projections for your business. Without such substantiating evidence, banks and lenders may exhibit reluctance to engage in financial partnerships.
Simultaneous Application for Multiple Loans
A common mistake among Business Loan applicants is the tendency to apply for numerous loans simultaneously. The misconception is that submitting multiple applications enhances the likelihood of securing at least one loan. However, this approach adversely affects your credit score. Lenders may interpret this behaviour as a sign of excessive credit-seeking, leading to a decline in your creditworthiness. Despite the straightforward eligibility and documentation requirements of Business Loans, applying for several simultaneously can undermine the convenience they offer.
Procrastinating Until the Eleventh Hour
Certain Business Loan applicants tend to pursue financial assistance only when they believe their company is on the verge of an operational crisis and in urgent need of funds. Applying for a Business Loan at the brink of necessity is precarious. Securing a new Business Loan involves a time-consuming process, including selecting the right lender, compiling necessary documentation, and completing the application. Considering the time it takes for the entire Business Loan procedure, it is advisable to initiate the search for a Business Loan well in advance.
Neglecting Financial Oversight for Your Business
Before seeking a company loan, ensure that your financial records are well-maintained. Lenders typically request corporate financial statements from the preceding two years. An outdated business account is a common business mistake that might lead the lender to question your ability to manage your profit and loss statement effectively.
Lenders seek insights into your financial performance in previous years to assess your financial standing. Demonstrating that your accounts are reconciled after each fiscal year conveys financial discipline, boosting the impression that you are a reliable borrower. This, in turn, enhances the likelihood of loan approval. Lenders are inclined to provide a Business Loan when they perceive a lower risk in investing in your company, believing in its potential for success.
Entering into Agreements Without Thorough Examination
The Business Loan contract often comprises a plethora of technical jargon, making it challenging for many loan applicants to comprehend fully. Consequently, it has been observed that a significant number of applicants sign these documents without a comprehensive reading, marking one of the prevalent mistakes in Business Loan processes.
Affixing your signature to a loan agreement without a clear understanding of its intricacies can pave the way for numerous issues in the future. In instances where the terms and conditions appear unclear, it is advisable to seek the counsel of a proficient lawyer who can offer insights and assist in deciphering the complexities of a Business Loan agreement.
Partnering with trusted lenders like Godrej Capital ensures that the advantages of a Business Loan become instrumental in fostering the success and expansion of small businesses, allowing them to unlock their full potential. A Business Loan from Godrej Capital can prove to be valuable for entrepreneurs seeking to broaden their enterprises, handle tax considerations, oversee working capital, fund upgrades and innovations, and retain authority over their earnings.
Elevate your business success with Godrej Capital's Business Loan, offering entrepreneurs customized financing solutions to fuel their business expansion. Enjoy attractive features such as rewards for timely repayments, flexible repayment plans, and swift approval and disbursement processes, enhancing the path to seamless business growth.
Apply now for a Business Loan
Also Read: Everything you need to know about Business Loans – A definitive guide
Looking for more insights into Business Loans? Visit our Knowledge Centre today.
Related FAQs:
- How to calculate monthly EMI on my Business Loan?
To calculate monthly EMIs on Business Loan, use online Business Loan EMI calculator.
- Do I need a collateral to secure a Business Loan?
Unsecured Business Loans are available without collateral. So, you can secure a Business Loan without mortgaging your property.
- What is the interest rate of Business Loan in India?
Business Loan interest rate depends on your lender’s policy. Godrej Capital Business Loan starts from 17% p.a.
- Does Godrej Capital offer Business Loan for MSMEs?
Godrej Capital understands the challenges faced by MSMEs and offers tailored loan solutions for MSMEs. Explore Business Loans for MSMEs today.
- Which type of loan is best to start a business?
Mainly, there are two types of Business Loans: Secured Business Loan and Unsecured Business Loan. For a secured Business Loan, you would need to mortgage your property, which is not required in an unsecured Business Loan. However, a secured Business Loan allows you to use the loan amount as per your requirements and you can start business with this type of loan. On the other hand, an unsecured Business Loan is usually available for profitable businesses with a vintage of 3 years or more. Example of secured Business Loans are Loan Against Property and Udyog Loan Against Property. Example of unsecured Business Loan are Business Loans.
Disclaimer:
The contents of this article are for information purposes only & not a financial advisory. For more details, please refer to the product or service document and/ or connect with our customer representative prior to making any financial decision. The information is subject to update, completion, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
Financing through Godrej Finance Limited. Product Terms & Conditions apply, for details visit www.godrejcapital.com
