Category Archives: Loan

You have mostly come across borrowing loans against the land, gold, or a house. But, if you’ve put your money in a mutual fund investment, can you take a loan against it?

Let’s find out.

An overdraft against mutual funds, could it be? There are always emergencies right be it Small or big? It can happen. There can be a time in those situations that you can fall short of money in a short-term aspect. Investing in funds is known to be liquid, but not all of the funds have high liquidity. Sometimes you would not be ready to redeem your fund as it would interrupt your financial goal, and liquidating it can be out of the picture. So a loan against this find could be an opportunity to keep the find and still be supplied the finance, right?

Let me also make it clear that not all banks would accept mutual fund investment from fund houses.

Pointers to Loans Against Mutual Funds

– You Can Avail Loans to Only a Certain Limit of your Mutual Fund Holding

The amount of loan you may acquire against your mutual fund  holdings is primarily determined by the sort of mutual fund scheme in which you have invested and the financial institution from which you will borrow.

– The Loan you Can Get Has an Upper Limit

Loans against mutual funds, like any other form of loan, have specific restrictions. Many banks have a maximum and minimum loan amount that you can get.

– You won’t Get these Loans From All the Banks

Many banks only lend money against a certain set of mutual fund plans that they have chosen.

– It will Cost you Less for a Loan Against Mutual Funds than Personal Loans or Credit Cards

A significant advantage of a loan against mutual funds is that the interest rate is lower than that of credit cards or personal loans. This is due to the fact that loans against mutual funds are secured, that is, they are guaranteed by collateral.

– You Will Still Continue to Earn Returns on your Pledged Mutual Funds

When you pledge your mutual fund units to secure a loan, those units remain invested in the market. This is due to the fact that when you pledge your mutual fund units with a bank, you grant the bank the right to sell the mutual fund units only if you default. However, as long as you do not default, your assets remain market-linked, and you continue to receive profits on them.

What are the Advantages of Taking a Loan Against Mutual Funds?

Running a business is no easy task. And, if you are starting a new venture with a completely new idea, the road to success becomes much more challenging. The only way to overcome the challenges and run the business successfully is to have adequate funding.

For new businesses and entrepreneurs, there are plenty of financing options available including business loans. Therefore, you need to research the financing option that will work best for you.

Here are the 7 useful business tips for young entrepreneurs looking for a business loan that will help you make an informed choice.

1. Determine the Purpose of Seeking a Business Loan

Before applying for an online business loan, you should have clarity on the purpose of seeking a business loan. Whether it should be utilized for funding growth, making a new acquisition, working capital requirements etc.

For example, if you are seeking funding to meet working capital needs, you can consider taking a business line of credit, which is approved immediately. You need to weigh the pros and cons of each business loan type, and whether it meets your objective and business needs.

2. Decide Loan Tenure and Repayment Amount

For any new business, it takes time to settle in the market and generate enough cash flows from business operations to sustain on its own.

Therefore, as an entrepreneur, you need to decide on the loan tenure and repayment amount accordingly. It is better to go for a flexible timeline, with repayment tenure stretching up to 5 years. It will give you enough space to focus on your business, rather than prioritizing repayments.

3. Compare and Pick the Right Lender

Always compare the different funding options available with different lenders and the type of business loan that suits your business requirements.

Also, check the lender’s background, review given by borrowers, time taken to approve the loan, and other necessary factors before finalizing the lender and business loan type.

4. Understand the Costs

In any loan type, the interest cost is greater than any other type of cost associated with the loan. Also, you cannot ignore it, as a small difference in business loan interest rate percentage can have a huge impact on the total cost of the loan over the repayment tenure.

While comparing the interest cost, instead of checking the annual rate of interest charged by the lender, you should focus on APR or Annual Percentage Rate.

APR reflects the actual yearly cost of the loan and is a more effective metric when it comes to comparing the cost of the loan. It includes the base interest rate plus all the costs (processing fee, service charges) to avail of the loan.

5. Gather all the Information and Keep Documents Handy

Before approving a business loan, the lender verifies the financials of the business, whether the business is profitable or not and can generate enough cash flows to meet all the expenses efficiently. Please note that most lenders do not provide business loans to applicants who do not have an existing business or one that does not match their business loan eligibility criteria. Thus, if you are planning to start your business from scratch for the first time, you can consider taking a personal loan (if you plan to keep working at your job on the side) or looking for alternative funding options. You can also ask a close family member with a good credit score and stable income to take a personal loan on your behalf.

If you do have an existing business and match the required criteria, please also note that before applying for a business loan, do detailed market research, a report on the viability of the business with financial projections for the next three to five years. This will help the lender to establish confidence in your business and approve the business loan. You should note, lenders refrain from financing risky businesses, which are untested in the market and have a low rate of success.

Keep all business loan documents handy including bank statements, cash flow statements, income statements, balance sheets, ITR for the past two years and legal documents like trade license, certificate of incorporation, GST certificate, etc.

6. Take Advantage of Tax Benefits

There are various government-backed loan schemes targeted towards promoting start-ups, MSMEs, SMEs, in India. For example, MUDRA loan, Stand-up India scheme, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), etc.

Such loan schemes offer many benefits to business owners and entrepreneurs, for example, tax benefits under various sections of the IT Act, interest rate concessions, and flexibility in repayments.

7. Check Your Business Loan Eligibility

Apart from the business financials, lenders also pay close attention to the creditworthiness and credit behaviour of the business owner. For example, having a credit score lower than 700 can affect your business loan eligibility. Also, having multiple loan accounts is not considered a good sign by lenders, as it indicates, you have a high dependency on credit.

Always check your business loan eligibility before applying, as any hard inquiry on your credit report can negatively impact your credit score.

Conclusion

Managing finances efficiently is crucial for the success of any business, whether it is a start-up or an established business house. You should weigh the pros and cons of every financial decision before implementing it.

The tips for entrepreneurs to be successful in availing a business loan in favorable terms will help you in making the right financing choices and let your business grow in scale.

Taking a personal loan has become one of the simplest ways to tackle cash crunches. The loan is offered at minimal eligibility criteria and can be used for several purposes making it the ideal choice for loan seekers. Be it providing financial support during an emergency or funding a purchase of an electronic item, or renovating your home, a personal loan can be availed for any of these purposes.

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• Another great advantage with a personal loan is that the loan is approved and disbursed in minutes. One can also apply for a personal loan online from the comfort of their home and get the loan disbursed within a few hours.
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• However, while applying for a personal loan, one must be aware of several factors, ignoring which can have a great impact on their finances and can also lead to future problems. For example, in the urgency of getting funds, many people ignore the interest rate factor. This impacts borrower’s future finances and can also lead to trouble if they are unable to pay the EMIs.
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• So, here are some of the dos and don’ts for getting approved for a personal loan.
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• Do’s

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• Do compare for the interest rate
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• Different lenders have different interest rate offerings for the customers and if you come across one, it is important to compare it with different lenders. Doing this will help you get the best offer at affordable pricing.
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• Figure out the loan amount that you require
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• It is important to know the exact figure of the amount you require before you apply for a personal loan. Borrow only as much as you truly need, even if you qualify for a higher sanction. This way, you don’t pay interest on a higher sum than you didn’t require.
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• Do compare for offerings with additional features and benefit
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• Before you apply for a personal loan, do your own research by comparing various loan offerings. Start by comparing the loan amount, tenure, and interest rate. Then finalize one based on the best offering and availability of additional features/offers. These can help you to reduce the cost of borrowing, or even help you get the money you need on flexible terms.
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• Do check eligibility criteria of the lenders 
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• Many people do not find it important but it is important to check for the eligibility criteria of the lenders. Doing this helps you know the lender who fits best for you as per your eligibility. So, when you apply with such lenders your chances to get approved for the loan also increases.

• Don’ts

• Don’t accept the first loan offer you get
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• You might have several loan offers in your message box or mail inbox. But, this doesn’t mean that you accept the first offer you see/get. Doing this is never advisable and even after you are given an offer, it is important to check for several other offers with different backs and then go with the one which suits your requirement and pocket.
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• Remember to shop around before committing to a loan.
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• Don’t take out the maximum loan possible
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• Your lender might suggest you go for a full loan amount for which you are eligible. But, we don’t recommend taking out a big loan just because you are eligible for it. Personal loans are loans with high interest rates and hence one needs to be careful before going for a particular loan amount. However, it is important to analyse your repayment capacity before you apply for a personal loan. Apply as per your requirement and repayment capability. The payment that seems manageable upon approval may be a mistake down the line if you unexpectedly lose your job or in a case where you need to spend some huge amount.
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• Do not make several loan applications at once
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• People who have an urgent need for cash sometimes apply for loans with multiple lenders at the same time. Each loan application results in a credit score check, which reduces the score marginally. These checks could hurt your CIBIL score, lowering your loan eligibility and credibility both.
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• A personal loan is a financial tool that could help to deal with several financial crises. However, keeping the above-mentioned pointers in mind when applying for a loan will save you from future problems.
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• For new business owners looking to set up their business or a medium, small and micro enterprise (MSME) wanting to explore new business opportunities for scaling up, it is necessary to know that strong creditworthiness is imperative to avail credit from formal lenders to achieve your business goals.
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• Here’s what you need to know about the common mistakes an MSME should avoid in order to stay creditworthy to avail business loans.
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• What is a Business Credit Score?
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• Your business’ credit score is calculated based on your credit behaviour over the previous 36 months. In case you have not availed any loan during this tenure, the credit bureau will not be able to assign a credit score due to dearth of data.
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• The proprietor’s credit behaviour and personal credit score, in the case of both a partnership and proprietorship, also counts when the business is assessed for lending.
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• Therefore, it is best that the business avails some loan, or the proprietor has credit card dues, and they are repaid on time, such that you can have a good score when you have to opt for a loan.
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• Whether it is to invest in new equipment, or to expand the business, or to pay off supplier credit, every business owner may have to take a loan at critical points in their business lifecycle. However, if your credit score is low, many banks and lending institutions will not approve your business loan application.
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• Your credit score would also impact the rate of interest and the structure of the loan that you will get from non-banking financial companies (NBFCs). Hence, it is imperative to understand what mistakes could impact your business’ credit score.
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• Mistakes To Avoid For A Good Business Credit Score
  
  
• High intensity of loan build-up
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• Credit score gets impacted if a business owner takes too many loans in a short period of time. This is perceived by lenders as a sign that the customer is credit hungry. Availing too many unsecured loans may raise red flags with lenders, so it is necessary for business owners to make use of a mix of unsecured and secured loans.
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• Guaranteeing a third-party loan
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• If a business owner stands guarantor to a loan availed by a third party and that third party defaults, the business owner’s/ guarantor’s credit score could be impacted even though he is not directly paying that loan.
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• By acting as a guarantor, you agree to be responsible for the repayment of the loan. In the first place, avoid giving such guarantees. If you must, you should be very cautious at the time of giving the guarantee, as someone else’s behaviour could impact your score. And if you have done so, nudge the person to adhere to the repayment timelines.
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• Not monitoring and updating the credit report
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• Another common mistake which people make is ignoring disputed amounts in the credit report. For instance, if no action is taken on incorrect dues, the amount would start to accumulate and draw interest. This would then balloon into a large sum and reflect in your outstanding credit. Do not ignore any disputed amount and follow up till it is fully resolved.
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• A business owner must also monitor his business’ credit profiles on a regular basis and not just once, viz. monthly, or quarterly. Going through the credit report is a must to understand the reasons for the low score.
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• If there are any irregularities that may be reflected in the credit score, it is even more important to raise the dispute on time as improving a low score takes time. Some examples of such irregularities are that a loan may be mistakenly attributed to the business that the business has not taken, or a loan that has been paid off completely may not be shown as “closed” by the lender.
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• Applying for loans from multiple lenders
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• When applying for a business loan, applying to too many lenders at once does not actually work in your favour. It is important that you apply only where you’re fairly confident that your application will get approved. It is also wise to restrict your loan application to only a couple of lenders when enquiring within a short period.
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• If you are working with a direct selling agent or a referral agent, while handing over your loan application to them, clearly communicate and ensure that they send your loan application only to a certain number of lenders. Be cognizant of too many loan enquiries; every enquiry on your credit report is noted and too many of them will bring down the credit score.
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• Restructuring of a loan
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• When businesses opt for loan restructuring, the same is shown as ‘restructured’ in their credit report as well. Banks and NBFCs are cautious of lending to such MSMEs. Any relaxation or waiver of terms of loans raises red flags with lenders that the MSME is incapable of repayment.
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• Bottom Line
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• Good credit report based on a business’ timely repayment and responsible financial behaviour indicates to lenders that the business is a creditworthy borrower. Lenders provide pre-approved loans to such customers, and a higher quantum of loan at that, without asking any questions. The loan process becomes smoother. Is there any downside, one may ask? Not at all. So, follow these tips and strengthen your business credit score before you avail your next loan.