Are you planning to launch a new business segment or looking to foray into a new category with your venture? Or have you been thinking about refinancing your business obligations by restructuring your debts with better loan terms? Regardless of the reason, there are times when you may find yourself in need of a business loan.
Business loans are often unsecured and do not need any personal or business assets as collateral. Thus, lenders face a higher risk if the loans turn into nonperforming assets (NPA). Hence, they put forward stringent business loan eligibility criteria to ascertain your repayment capacity. It then is crucial to adopt financial habits that can enhance the creditworthiness of your business. Listed below are five such healthy practices.
1. Be disciplined about your EMIs
If you have an ongoing loan, make sure to pay your EMIs regularly and on time. Avoid delaying your credit card bill payments as well. It will improve your CIBIL score and reflect responsible financial behavior. Lenders use this score as the primary parameter of your ability to repay debts. Thus, it is imperative to make sure that both your personal and business CIBIL scores are high.
2. Increase the efficiency of your cash flow
An efficient cash movement in your business lets you settle debts and pay for your expenses on time. Proper management of receivables prevents payment delays and working capital depreciation. Moreover, lending institutions check the cash flow system before sanctioning credit. Hence, to avoid rejections, revise your payment processes before you apply for a business loan.
3. Keep your business and KYC documents organized
Lending institutions always ask for relevant documents like
- Income Tax Returns (ITR)
- Bank statements
- Profit/loss statements
- PAN details
- Trade license and other business-related documents
Such documents act as proofs of your business income and financial condition. Thus, you should preserve your ITRs and get your balance sheets audited by registered chartered accountants. If you keep the paperwork updated, it can help you get a quick business loan sanction.
4. Research different business loan options
Equipment finance, MSME/SME loans, business term loans, and various other types of business loan are available in the market. Study your options before applying because opting for a customized line of credit can make availing of the loan simpler.
5. Refrain from making frequent loan applications
Every time you apply for loans, the lender scrutinizes your credit report. Such checks, known as hard inquiries, are recorded. Frequent probes of this nature raise red flags about the financial stability of your business. For this reason, it is crucial to carefully assess your finance requirement and not apply for a loan for business on an impulse.
Maintaining healthy financial habits like managing cash flows and auditing balance sheets improves your chances of getting finance and boosting your business profitability. And when the need for resources arises, you can pick from the best loan offers available. Tata Capital provides loans at a competitive business loan interest rate. You can apply online and access funding without any hassles.