Easy access to business financing can benefit your company in several ways. You can seize every great opportunity, streamline your manufacturing process, engage in aggressive marketing, and hire more skilled workers. However, with quick access to funds, you must obtain them at reasonable rates. Securing a costly loan may exacerbate your financial woes in the long run. Check out the five tried-and-tested methods for obtaining low-cost funding.

1. Do your research 

You will find countless business loan lenders in India, with each having a different credit evaluation method. They further have specific eligibility requirements, documentation procedures, and so on. Some lenders, for example, grant funds to entrepreneurs with a turnover of more than a crore, whereas others easily sanction loans to small business owners. Applying with one whose minimum requirements are compatible with your company’s profile can help you obtain the cheapest business loan interest rate in India. As such, the general recommendation is to explore your options before settling on any.

2. Healthy Credit Score

Whether you need money for your business or another reason, your credit score is the first thing that your lender considers. Many factors affect business creditworthiness. Among them are debt coverage ratio, previous debt payment pattern, number of new loan applications submitted in the last few days, and business credit card utilisation rate. If every preceding thing is in order, your score will be high. But what if you are dealing with a poor score? In that case, you must follow the suggestion below.

  • Automate your business payments.
  • Maintain an emergency reserve in your business to deal with any crisis.
  • Limit the use of business credit cards.

3. Maintain a Healthy Cash Flow

A proper cash inflow in a business indicates that you are prepared to deal with any financial challenges that may arise in the future. Lenders are also willing to lend money to companies having a solid liquidity position at a low business loan interest rate. However, given the volatility in the business environment, maintaining the company’s liquidity position is extremely difficult. As such, we have several recommendations that can help you improve your business cash flow. These are –

  • Make a list of business assets that are no longer effective or are lying idle in the corner of your factory. After you have the list, start selling these outdated assets one by one, and you will notice a significant improvement in your business cash inflow. 
  • If inflation is rising production costs and customers are willing to pay a slightly higher price for your product, never be afraid to revise the price.
  • Request that your suppliers offer you better repayment terms. It will provide you with enough time to sell your products and generate revenue that can aid in settling bills in quite an easy manner.
  • Reduce unnecessary business expenses. For example, if you have a habit of stockpiling without first reviewing your needs, it will only block your funds.

4. Choose your Tenure Carefully

Before you make any assumptions, it is crucial to clarify that when you apply for a business loan, the repayment term does not always play a role in determining the interest rate. However, following approval, it affects the total interest you have paid until the end of your loan. Remember that the longer your payback period, the more you will contribute to the loan interest component.

Refer to the following table for a better understanding. 

Repayment Tenure1 Year2 Years3 Years
Loan AmountRs 25,00,000Rs 25,00,000Rs 25,00,000
Interest Rate12.5%12.5%12.5%
EMI Rs 2,22,707Rs 1,18,268Rs 83,634
Interest Payable Rs 1,72,486Rs 3,38,438Rs 5,10,826
Total Payable Rs 26,72,486Rs 28,38,438Rs 30,10,826

We kept the interest rate and loan amount unchanged in the above table and only changed the repayment term. Although a longer tenure lowers your EMI, it significantly increases your interest burden.

5. Have a Business Plan

When it comes to using business loans, you have a lot of options. This means you can use the funds for any legitimate business purpose. People usually apply for this type of funding when they want to expand their operations, launch new products, buy inventory, or pay their employees’ salaries. Even with the flexible usage feature, the lender is curious about how you intend to expand your business. They will request a sales forecast for the next few years, anticipated revenue, and projects where you wish to invest. They may also request audited business financials. If you are able to provide these details and documents, you can qualify for a low-interest business loan.

To conclude

Keeping your business afloat necessitates recurring funding. Although financial institutions provide easy access to funds these days, it is critical that you find ways to secure money at a lower rate. Just have a well-researched business plan, choose your tenure wisely, conduct research on the market, and maintain positive cash flow. 

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