Things to know before issuing a loan from NBFC in India

 

Small and medium enterprises (SMEs) are the significant contributors responsible for a massive chunk of India’s GDP. If you are operating an SME or starting your business, arranging money for smooth operations must not face a downfall. 

 

After the covid-19 outbreak, SMEs suffered a lot. People lost their jobs due to a lack of funds in SMEs. At that time, the non-banking financial companies (NBFC’s) came to the rescue with SME loans for new business.

 

NBFC’s have always supported enterprises for a long time and provide the best SME loans for new business in India. Now, if you are going to issue an SME loan in India, you must familiarise yourself with a few things, first:



  • Loan to value ratio: LTV or loan to value ratio is determined by the loan to be issued by NBFC upon the value of collateral submitted as security. It’s immensely crucial to calculate LTV, not just for the lender but also for the borrower. The ideal LTV ratio is around 80%. It is the highest for residential properties and comparatively reduced for commercial property and manufacturing units. Many SME finance companies in India allow you to calculate the LTV ratio online.



  • Set business goals- Before looking for SME loans in India, you should set up your business goals. Be authentic and practical while setting up your plans to remain stress-free in the future. You cannot issue a loan on just the behalf of a mortgage; your business projections play a vital role as well. Your loan will be issued only when you convince the lender or NBFC that you can generate profits out of the lent money.



  • Assess the loan tenure- Now, when you have specific business projections, you should also calculate the time needed for repaying the SME loans in India. If you have provided the mortgage, the loan tenure can be increased significantly, but repaying the loan early or in a short period will improve your credit score. You can choose the loan tenure by predicting the future cash flow and revenue.



  • Arranging documents- Arranging the legit documents is necessary before applying for a loan from SME finance companies in India. It is one of the major reasons behind the delay in approving SME loans in India. NBFC never compromises with documents, which is why they are trusted all over the country. Although it’s pure practice, you should look for NBFC’s which take less time in document verification so that you can pay complete and undivided attention in growing your business.



  • Interest rates- After analyzing all the points mentioned above, you should consider the most critical monetary factor- Interest Rate. It varies in different NBFC’s. It also depends on your negotiation skills and your yearly revenue. Many large NBFC companies in Mumbai provide loans at a very low-interest rate.

 

Bottom Line:

Always measure the LTV ratio before issuing a loan and take a loan according to your business projection. These tactics will not just help you to give an ideal loan but also to live a stress-free life.  

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