Scaling an organization sans any outside funding or business loan can be a considerable challenge, especially for SMBs with little to zero financial knowledge. To grow a company, you need to recruit new workers, invest in the supply chain, manage day-to-day operations, etc. 

Business loans help firms to accelerate their journey, giving them the much-needed resources to achieve the objectives. However, such loans are notorious for being difficult to obtain; and think that organizations can end up losing the loan collateral. Amidst such varied opinions, companies need to know about such lending options before signing the loan application form. Below are various factors of what you need to know about business loans before considering them:

Assessment of business requirements

Why would you obtain financing is the very question that you need to ask yourself before applying for a business loan. Good debt generates long-term value, while low debt forces the company into financial turmoil and inevitably leads to bankruptcy or business closure. Additionally, being over-leveraged or under-leveraged may have long-term implications for the business and impact its financial health. In a nutshell, before you begin reaching out to lenders, it’s crucial to determine the intent, amount, and timing of a business loan.

Read More: 8 Things to Know Before You Apply for a Personal Loan for Emergency

Knowing the types of loans available:

  • Terms loans

Term loans are among the most mature and favoured types of SME loans. In the case of a term loan, the borrower receives a lump sum payment and has a repayment period from six months to five years to repay the amount in instalments. Some lending institutions, including property, house, etc., offer long-term loans against collateral.

  • Cash credit facility

The facility is a kind of a short-term funding source. Borrowers can draw against a financial cap and repay their loan when they have it in the account. Such a facility is used mainly for short-term requirements. 

Initiatives by the Government

The Government has launched several start-up initiatives to create a robust eco-system for start-ups, such as the 59-minute MSME Business Loan, Pradhan Mantri MUDRA Yojana, Startup India, eBiz portal, and more to accelerate small business growth.

Researching about available options

Many lending institutions are willing to provide small organizations with working capital loans. Each of them has different terms and conditions to get a loan sanctioned, such as direct online lenders, central commercial banks, P2P lending sites, etc.

Therefore, as a rule of thumb, an extensive online and offline research on the conditions and criteria of the lender to find the best deals is essential. You can also use a business loan EMI calculator to know about the details of the loan provided by the lender.

Knowing your creditworthiness & organizational prowess

Lenders can determine your creditworthiness based on credit-bureau ratings and your credit history for a business loan. So having a credit score above 750 would help get loans approved more quickly. Also, lenders will scrutinize all unpaid loans and debts before sanctioning a loan to consider the organization’s repayment capabilities. Organizations funded by venture capital investors or influential institutional investors have an edge as such businesses’ corporate governance appears to be better. Additionally, ensure that all legislative compliance or fees, such as income tax, GST, excise, etc., are charged and revised during the loan application process. Lenders can analyze both the tangible assets and cash flows/receivables to decide whether there is security in case of default.

Ensuring your financial and brand strength

The financial institution will review the account record, credit score, and financial statement of the business based on the loan; Therefore, ensuring the documents are accurate and up to date is essential. When sanctioning the loan, the lender may determine the revenue, gross margin, debt-to-equity ratio, liabilities, and other factors. Every lender shall conduct their due diligence before approving a loan. This involves updating information about the company and its owners, which is accessible online. The business website and its social media accounts such as LinkedIn, Facebook, Twitter, and other channels should also be checked.

Evaluating the T&C of the loan proposal:

The main measures provided by a lender must be measured and assessed using the terms available from other financial institutions to ensure that the loan meets the business criteria. Compare the loan interest rate and how it can differ over time; some protection or collateral required, liability clause, etc.

Negotiating with the lender: 

While following the above steps is crucial, it is also equally important to put your business skills at work through hard negotiations with the financial institutions. Find the best deal with your lending partner by quoting competition and other factors.


Business loans are available from numerous lenders, with various choices customized to your financial status and company requirements. Comprehending the lender’s condition in such a situation will help dramatically increase the chances of getting a small business loan and achieve the organizational objectives.


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