Funding is imperative for a business to get off the ground and keep it going and growing, no matter what size, what stage. This funding majorly comes from promoters' own means as well as borrowings from outside.
In the formalised lending space, today we have a spectrum of lenders ranging from PSU banks, private banks, NBFCs as well as new age fintechs. With multiple financing options being available, it's important to know how to choose the right one.
Though access to internet and various online platforms have made it easier for the customer to evaluate and compare different lenders; let's try to understand the important factors to consider while comparing lenders and choosing the most suitable one.
Market reputation of the Lender
It has become convenient to review any bank or NBFC by doing an online search. Many customers share their feedback and experiences online. Although these reviews may or may not be the most accurate representation of facts but they sure help in screening out a few options. Getting into a loan agreement with a lender that lacks proper infrastructure may lead to unnecessary hassles.
Application and Ease of Process
Though the application process and documentation (KYC, bank statements, financials etc.) seem more or less similar across the industry but still there are lenders who offer easier process with less documentation and faster turnaround time due to digitisation.
One should evaluate feasibility and accessibility of the application process. Many a times, customers are left wanting due to lack of some documents or formalities. This wastes time and may lead to redoing the application process for a different lender.
Loan amount and requirement of owned property
A business loan is typically an unsecured loan; however, many lenders look for property ownership of at least one of the promoters as a yard stick of stability and contactability. Further, the unsecured element leads to high difference in the loan size amongst various lenders. While some restrict it to Rs 30 lakh, there are others offering as high as Rs 75 lakh.
Modes and ease of repayment
In order to maintain credit worthiness, timely repayment of EMI is extremely important. Nowadays lenders provide various options to the customer for repaying their loan. One should choose a lender that offers flexibility in repayment. The date of EMI is also important for certain businesses depending on their receipts and payment cycle and salary payment dates etc. One should also look for prepayment options and charges associated with the same while availing a loan.
This is often considered as the most important factor since the cost of borrowing not only affects cash flows but also has an impact on the financials of the company. One must compare rate of interest, processing fees, penal charges and foreclosure charges etc. Interest may also be fixed or floating.
Also Read: Why You Shouldn't Default on Loans
There are insurance attachments too to the loan in the eventuality of death, permanent disability etc. Some options leave lender as the sole beneficiary whereas in some cases depending on the loan amount serviced, a portion of claim amount is transferred to the legal heirs of the borrower post closure of outstanding loan amount.
It's hard to find a lender which fits into all the above factors as per customer's expectation. Ultimately choosing a correct lender requires finding a right mix of all the important factors. Business owners can also finalise the lender by prioritising their requirements and then hand pick the ones meeting them in the best possible manner.
(The writer is Business Head for SME- Unsecured Loans & Partnerships at Clix Capital.)
Copyright©2021 Living Media India Limited. For reprint rights: Syndications Today