Are you tossing the pros and cons of taking a business loan? Perhaps a bit anxious about the implications? Or maybe unfamiliar about the process involved? If you want a loan to expand your business, improve your cash flow, buy inventory, invest in office space or equipment, or simply consolidate your business debts, then a business loan might be a good option. Here are some facts about business loans to consider as you start 2017.
Myth 1 – A personal loan is a better option than a business loan:
Personal loans are one of the most expensive loans on the market, and you can get a business loan at a much lower cost. Depending on your credit score, personal loans can come with interest rates of up to 30 percent per annum. Perhaps the only advantage of a personal loan is that you can use the loan amount without any restrictions, but that flexibility might be negated by the much higher cost of the loan. Also, keep in mind that a business loan can be eligible for tax benefits.
Myth 2 – Use your savings instead of taking a business loan:
It is unwise, even risky, to eat into your personal savings for the health of your business. In the unfortunate event that your business fails to take off, not having any personal savings to fall back on can lead to unnecessary financial problems. The result – you will need to borrow again at a high interest rate to finance your living expenses.
Myth 3 – Your personal credit score will not impact your business loan application:
While the main focus while considering your loan application is the health of your business, your personal credit history is also an important factor. It gives lenders an accurate idea of your financial behaviour. If you have a good individual credit background, your chances of being approved for a business loan are stronger.
Myth 4 – It is difficult and cumbersome to get a business loan:
On the contrary, if you have a good business and personal credit score, and have a sound plan for how you will use the loan amount; the process for securing a business loan is no more difficult than say, a housing loan. While you might not need to provide much documentation when taking a personal loan, you will also be paying for that convenience in terms of high interest rates.
Myth 5 – Big banks are best for business loans:
Do not eliminate any options with pre-conceived notions. You might be surprised at the various options and advantages offered by competing lenders. Your small local NBFC might offer excellent terms, a big bank might offer a wider array of loan products to select from, or you might already have a good relationship with your existing PSU bank and have a simple loan approval process. In addition, the newer players might be able to offer you lower interest rate or a simpler process.
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