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Thursday, December 2, 2021

Business Loan Requirements: Why is Timing in Business Important?

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Businesses are meant to be dynamic, i.e., be flexible depending on the market demand, market sentiment, business cycles and many other factors. Business decisions, especially involving finance, are often made based on short term market trends.

Take the example of Asha. During the lockdown in March 2020, she predicted that there would be a massive demand for laptops. She immediately took a business loan to purchase 50 laptops and rent them out to the customers. The rent from the laptops is much greater than her EMIs.

Likewise, Ramesh runs a mini-meal service from a small rented shop. He is planning an expansion shortly by taking a business loan. He is in the process of shortlisting the lenders based on the terms of the loan and the business loan interest rates. 

As the saying goes, “timing is everything”. Some people achieve success due to their excellent sense of timing. Let’s analyze how timing plays a critical role in availing a business loan:

Short-term circumstances

Sometimes, the circumstances may require the business entity to arrange for funds quickly to survive in business or grab new opportunities. In the above example, Asha borrowed funds to grab new opportunities. Likewise, the Government may roll out a tender for road projects, and the tender may be open for a limited period. In that case, the need for a business loan may be imminent.

Long-term planning

Any business entity has long-term goals. To achieve these goals, it needs funds. Being proactive and planning leads to a clear picture of the current financial position and the future roadmap. In the case of Ramesh, based on his proactive approach, he has drawn a roadmap of his mini-meal service business to be converted into a restaurant by buying new equipment, hiring more people, buying a plot, etc., with the help of a business loan. With clear planning in place, a borrower can get a chance to evaluate the loan options which offer better terms.

A borrower can avail of a business loan when the investment has been finalized, i.e., when the deal is ready to be executed. This ensures that interest and EMI are payable when the new machinery or asset is acquired or put to use.

Interest rates

Business loan interest rates often keep on fluctuating based on the overall situation of the economy. A borrower may be tempted to take a loan when the interest rates are low. This kind of business decision should be avoided unless the business needs a loan and the borrower is reasonably sure of a steady business income.

A borrower can evaluate the financial commitments over the loan term using a business loan EMI calculator.

Credit score

The borrower’s credit score determines the business loan eligibility, interest rate, collateral etc. A better credit score ensures that the borrower can take a loan at better terms. If taking a business loan is not essential, the borrower must first improve his credit score rather than rush to avail a business loan when the interest rate is low.

Repayment

Just as borrowing is essential, timely repayment of EMIs is also necessary. It improves your credit score and ensures that you have a clear record when there is a sudden need to procure a business loan.

Conclusion

Timing plays a crucial role in every aspect of life. This is especially true in the case of a business.

Loans are readily available through banks, financial institutions or other online credit sites. However, how much you must borrow and when to borrow should be based on the needs of the business and its ability to honour financial commitments.

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