Business Loans:
Obtaining a business loan could be an unnerving process for any new business owner. We are sure this article will help you with the information you need.
Here's the most important thing you need to know. Kripa Financial Solutions Limited could help you get the whole or part of your Business Loan at considerably lower interest rates!
So, what is a Business Loan?
Business Loans or Commercial Business Loans are loans you could take from a lender or bank for any of the following reasons.
- You are planning to start a new business, and you need capital for the same
- You are purchasing an existing business from another commercial entity
- You want to leverage a franchisee opportunity with an existing business
- You have plans to invest in an already existing business - this could be yours or belong to another entity
- You are looking for funds to finance the growth of your own existing business
Business Loan: Types
Knowing the types of Business Loans will help you better understand what loan works best for your business.
Banks and lenders approve business loans after evaluating the financials of the business and the applicant's capability to churn a profitable turnover.
While business loans are here to help new and seasoned entrepreneurs alike, here are the factors that a lender/bank would examine before sanctioning you a loan.
KEY FACTS
Business Loans
Interest Rate Options
Fixed Interest Rates: As the name suggests, your repayment amount will be the same for the entire loan term. This is great for new and small businesses, as they offer complete visibility of the monthly repayment amount.
Floating Interest Rates: With these loans, you could pay off lump sums during the loan term, or even change the monthly repayment amount. If you are looking for a loan that you hope to close ASAP - this option is a better deal.
Qualifying Criteria
- You will need a detailed document and plan explaining your business venture, with sufficient data-driven evidence and projections, to prove that your business plan is feasible and will be profitable.
- After explaining your business to the bank, you need to show that you have the expertise and experience to run it.
- And most importantly, you can repay the Business Loan within the prescribed time.
Credit Score
One of the most important factors that banks and lenders evaluate is your credit score. Though you may think you have a great credit score, at Kripa, we double-check it to ensure there isn't anything incorrect or harmful. This gives you a clear stance to negotiate for business loan approvals, higher loan amounts, and lower interest rates.
Underwriting Process
Surprisingly, the application evaluation process is very similar for commercial business loans and home loans. The banks/lenders will evaluate your revenue, existing debt(s), and credit history to score your loan repayment capability. In the case of residential loans, your home property will be considered loan collateral and therefore ask for it to be appraised by a registered valuer. Similarly, in the case of commercial business loans, the bank or lender will closely inspect your business plan to answer the following questions.
- Are the funds going to be used to develop a new business or expand/revive an existing business?
- What is the credit history of the business owner? Does she/he have a good repayment track record?
Typical Repayment Terms
A Business Loan is what bankers call an unsecured loan - as there is no physical property mortgaged to secure the loan. Unlike in the case of a home loan or commercial property loan.
Given that most startups don't make it beyond their first 100 months, it is natural for lenders and banks to place Business Loans in the high-risk category.
For these reasons, you will come across the following repayment terms:
- Business Loans come with an interest rate of 3% to 5% higher than standard home loans.
- Most business loans will have a repayment period of only 5 to 6 years.
- But suppose you are willing to offer a residential property to secure your Business Loan. In that case, you could get a repayment period of up to 30 years.
Business Loan: How much can you borrow?
- A maximum of 50% of the business's value or purchase price (excluding GST).
- Suppose you are willing to provide an asset as security. In that case, you could get another 80% of the value of the security asset. This is a big decision
Business Loan:
The required documentation
This varies with every bank/lending organization. But with our experience in the Financial Solutions business, here is an exhaustive list of documents you need to keep ready before initiating a Business Loan application.
A professional presentation clearly lays out the business plan and clearly states the business's objectives. It should also have previous statements and financial projections. Remember - getting a Business Loan is very similar to obtaining funds from a Venture Capital funds company. In this sense - you need to be able to pitch your business strongly to the Bank/Lender. It would be wise to keep the answers ready for questions you can foresee. For example - are there any gaps in your business plan? If yes, then how do you plan on addressing them? If you are looking for resources to draft an excellent business plan, try
this.
Things to do
- Competitor Analysis.
- Business Sale and Purchase Agreement.
- Two to three years of tax returns - depending on whether the business is new or an existing one and the age of the company.
- The financial performance history of the business - Profit & Loss Statements, Accounts, Assets & Liabilities Statements. These need to be prepared by a chartered accountant.
- Cash flow forecast.
- Revenue projections.
- Copy of the Lease Agreement of the business's commercial premises
A few online lenders go the extra mile to make the Commercial Business Loan application process easy for small and new businesses. Depending on the loan application amount, they may ask for fewer documents.
Why Kripa Financial Solutions?
Simi Sethu and Sethu Arjunan found Kripa Financial Solutions (Kripa or KFS in short!). Both Simi and Sethu bring unparalleled empathy for immigrants from the South Indian and Asian communities. A former banker & sales professional, Simi has been actively involved in the community, helping customers across New Zealand to achieve their portfolio of properties.
High approval rates
We at Kripa are experts in presenting your commercial loan application and repayment capabilities. Therefore giving your commercial loan a better chance of getting approved.
Higher loan amounts
We draft your application in a manner that encourages banks to disburse a higher loan amount - to make your commercial property purchase as smooth as possible.
Lower, better, negotiated interest rates
We evaluate current commercial loan proposals from various lenders and banks to see how they could be structured to lower the interest. We also negotiate with several lenders and banks on your behalf to get the best possible commercial loan rate. Because the lower the interest is, the higher the repayment towards the principal amount. And better for your business.
Speedy loan disbursals
We understand that your commercial property seller is evaluating several buyers simultaneously. And the speed of turnaround could help you compete with other buyers interested in the same commercial property.
Interested in our services? We’re here to help!
We want to know your needs exactly so that we can provide the perfect solution. Let us know what you want and we’ll do our best to help.
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