Credit Score and Business Loan – Running a business is not an easy task as it involves many parameters that a business person has to take into consideration while making decisions. Getting a Loan for the business can sound intimidating as it introduces you to some business terminologies that are important from the point of finances. Availing a loan for your business can have an impact on your credit rating as well. The following points discuss the credit ratings in detail.
Understanding Business Credit Score
BSC or Business credit score is a number that demonstrates whether an organization is decent to get a credit or become a business client. Credit scoring firms check the company’s credit history, which includes obligations and repayment to lenders and suppliers, tax filing issues, and bankruptcies. The score is generated after checking the history as well as years of operation of the company, type of business involved in, repayment issues, if any, and the business plan of the borrower. If all the parameters are right, your business credit score will be good, and it will be easy to get a loan from the financer.
Personal Credit Score
A personal credit score is a statistical number that showcases the creditworthiness and the history of credits of the borrower. It involves checking the number accounts in the name of the borrower, total debt on the borrower, and the repayment history. The credit score can range between 300 to 850 and is calculated on the above said details. It shows the repayment ability of the person promptly.
Depending upon the type of business, your personal and business credit scores affect each other. If you have a sole proprietorship business, then your credit score is your business score. In such a case, if you default on the payments, then it will affect your credit score.
In a partnership business, the personal credit score of the partners and the firm is essential. Any default on the firm’s part will reflect on the personal credit scores of the partners. In limited liability partnerships, the partners are liable only partially for the debt. Still, the credit company requires the personal credit score of the partners. In a limited company, there is no debt burden on the shareholders, and the debt is in the name of the organization. Yet, the personal credit history of the directors is involved. It is, therefore, critical for a small business owner to maintain a good personal credit score and business credit score.
Prepayment & Repayment of a Business Loan
A business loan is the lifeline of the small and medium business owners in India as it gives them the capacity to revamp, reconstruct, and expand their business. Many banks and financiers in the market provide easy business loans with less documentation with a fixed tenure to the borrowers. Once the loan is availed, the borrower has to understand the repayment mechanism to the financer. Equated monthly installments or EMIs’ are a term known to everyone and is the way of repayment to the lender.
Business loan keeps going for a fixed number of years. In any case, if a borrower chooses to reimburse the credit before the tenure end, the bank can’t gain the premium that was fixed at the hour of advance processing. Thus, the loan specialists charge a prepayment expense on the prepayment.
Prepayment Charges
The prepayment charges in SME advances differ from lender to lender. On the off chance that you are pre-covering the advance, also called advance fore-closure, the prepayment expense will be around 4% of the outstanding principal amount, and the part of the principal paid back to the lender in the last 12 months.
In the event of part prepayment, a few banks don’t charge any expense on if you are pre-settling up to 25% of the outstanding principal amount. Goods and services tax is also levied on the prepayment charges as applicable.
How is Prepayment Beneficial?
It is advisable to check with your bank or financer at the start of the loan about the prepayment charges and other terms and conditions involved. The preclosure and prepayment details are also mentioned in the proposal form shared by the bank with the borrower. One should read it in detail and check with the lender if there is an ambiguous term involved. Moreover, it is an excellent choice to prepay your loan as it removes the burden one carries during the tenure of the loan.
Prepayment can help you save a considerable amount of money if you do it the right way. As mentioned above, try to prepay the loan as early in the loan tenure as possible to save most on business loan rates.
Form 16 For a Business Loan
Nowadays, with the government deciding to encourage small business growth in the country, individuals are encouraged to apply for small business loans. Avail a business loan through best of loan aggregators that help your credit score, lower interest rates and more with Buddy Loan.
Business loans can be unsecured business loans or secured business loans. Getting a small business loan has gotten much easier than in the past. Even a buddy loan can be availed for hassle-free borrowing.
One can apply for a small business loan through banks, i.e., the offline mode, or in case one prefers the easy, convenient mode, online business loans are also available.
Applying for a business loan online is easy with the facility to upload documents online and the maximum turnaround time offered by many institutions in twenty-four hours. Some types of online loans are also approved instantly.
Several documents are required when applying for a business loan
The Credit Score is an essential document in that any lender, whether a bank or an institution providing online loans, will check the Credit Score to understand the credit history as well as the pattern of repayment. This is especially important in assessing the repayment potential of the borrower.
The age of the business, i.e., the number of years that the business is in operation, will be taken into consideration to check the stability of the business.
The potential collateral that can be offered will also be considered in case of a secured business loan. The end use of the funds, i.e., the purpose for which the funds will be used, will also be taken into consideration.
Although it is possible in theory to get a hundred per cent loan for starting a small business, most banks and financial institutions are wary of providing the same and prefer to give part-funding with some capital that is self-funded by the owner(s) of the small business.
Form 16
Form 16 is a form that is to be mandatorily issued by companies and organizations to individuals who have worked in their organization, irrespective of any TDS (Tax Deducted at Source) deduction from the salary of the employee. Therefore, Form 16 serves the dual purpose of checking the employment status and stability of finance of the individual along with the income potential of the individual.
In case the business loan is taken through the route of a personal loan, Form 16 is asked by almost all banks and financial institutions. This is done to understand the level of income of the individual and the ability to repay the loan.
Loans taken where the EMI (equated monthly instalment) is of a greater proportion to the income would mean that the ability to repay is reduced in certain circumstances. Banks and financial institutions prefer to have certain ratios when it comes to the income potential as well as the EMI (equated monthly instalment). This is the area where Form 16 is of great help to banks as well as financial institutions.
PAN Card is Mandatory to Get a Business Loan!
YES! Any financial transaction executed in India between an investor and a borrower, be it an individual looking for a personal loan, a business owner looking for a business loan, a student looking for an educational loan, or a potential house owner looking for a home loan, is based on his/her credit history and credit scores. Buddy Loan offers such business loan with potential benefactors.
And these credit scores are linked to what we commonly refer to as the PAN. The Primary Account Number is a unique identification number assigned to every taxpayer in India. All tax-related records are linked against this single Identification number.
Although Aadhar has now taken over most of these roles, the PAN card remains an essential piece of documentation that is required for almost all finance-based decisions.
Alternative ways exist for applying for a loan; here are a few
- Ensure you have a good credit score. The average score ranges between 700-900, 700 being the average, and 900 being the highest.
- Bank statements and ITR returns can help investors track your financial activities in the absence of a PAN.
- A healthy relationship with your banks helps you qualify for loans.
Loans are simply disbursed based on address proofs, financial activity, and your ITR returns. However, citizen responsibility dictates you have a PAN. With Buddy Loan, find the best-suited investor for your needs, and make full use of the online documentation option, with a range of alternatives to make your experience of applying for a business loan sweet and hassle-free.
Benefits of Business Loans
Unlike “bad credit” loans like personal loans, the pros of applying for a business loan outweigh the cons. Let us have a look at some benefits a business loan applicant is entitled to.
- Convenient and accessible: Applying for a business loan today is no mountain climb if you have a good credit history. There are hundreds of options available in the markets today.
- Multiple options: We now know a business loan application is not limited by the choices available to him/her. The borrower can opt for the option best suited for his/her business needs.
- Flexible repayment options: Business loans are designed in a way so as not to hamper the current business module of the borrower.
- Hassle-free business loan application process: These loans are so easily disbursed, a borrower need not run around in circles and can apply for a business loan online unlike the old traditional ways.
- Instant approval: Business loans are usually disbursed within 24 hours, depending on the amount the borrower has applied for. Even so, a borrower does not have to wait for days to get his/her business loan approved.
- No collateral required: This, of course, depends on the type of loan a borrower has applied for. Unlike mezzanine loans or asset-based financing, most business loans do not require collateral or a mortgage.
And to top it off, business loans are easily accessible through Buddy Loan. With low-interest rates and flexible payment options, Buddy Loan makes sure your business grows to great heights.
Documentation
Buddy Loan has a varied range of investors, depending on the borrower’s requirements. Although documentation may vary from lender to lender, it spans in and around the following list.
- Identity proof (Aadhaar Card, Driving License/PAN card/Passport/Voter ID)
- Address proof (Electricity bill/Telephone bill/Passport/Trade license/Lease agreement/Sales Tax certificate)
- Income proof (Bank statements ranging from 3 months to two years, depending on the lender’s requirements)
- Financial documents (ITR for the past two years along with balance sheets, Income and profit & loss a/c)
- Business Ownership proof (For existing business owners only. This is not applicable for startup financing seekers)
If you are looking for a business loan, look no further but into Buddy Loan.
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