Secured Business Loans require security for borrowing the funds. Typically through pledging assets or a personal guarantee, you give surety to the lender to pay off the loan. The lender has the authority to seize the collateral in case of default. Secured Loans, therefore, help reduce credit risk for lenders. These loans carry better loan terms than unsecured Business Loans, such as – a lower interest rate and a more extended loan tenure. Here is a deep dive into how to get the best secured Business Loans.
1. Credit Rating/CIBIL score of the Individual Promoters/Directors/Proprietors – Credit rating defines the creditworthiness of a debtor. It is a critical factor in determining the loan amount that can be raised for the business. A CIBIL score determines an individual’s credibility based on factors such as loan repayments, EMI settlements and credit card payments. Businesses must maintain their credit rating to qualify for attractive loan terms. Additionally, the company’s promoters/directors/proprietors should have a good CIBIL score to get the best loan offers.
2. Cash Flow Status of The Business – Lenders evaluate businesses primarily based on the cash flow generated to understand their repaying capacity and to analyse the probability of amount recovery and default. The businesses need to detail the use of the loan amount and how they plan to generate income through the borrowed funds. Businesses with strong and consistent cash flows will likely get more attractive loan offers.
3. Type of Business – Most businesses are classified based on their nature.
(i) Defensive companies – These comprise businesses such as healthcare, personal care and household. Such companies are immune to the ups and downs of the economy and do well, irrespective of any change in the economic condition.
(ii) Cyclical companies – The performance of cyclical companies is more likely to get impacted by the changing economy. These consist of businesses such as car manufacturers, who are likely to witness more growth when the economy is on the upswing.
(iii) Growth Companies – The growth companies typically comprise newer businesses expected to follow exponential growth in the initial phases and have a great idea to mature and stabilise as a defensive company.
Lenders evaluate businesses based on their operations and plans. Companies that have the potential to penetrate larger markets or have elaborate expansion plans qualify for better loan offers.
4. Collateral – Businesses’ most commonly used collaterals are real estate, cash savings or deposits, equipment and inventory. The inherent value of the collateral plays a crucial role in attracting the best offers.
Businesses seeking Secured Loan financing can apply for Muthoot Loans. They may use a wide range of assets to pledge for collateral, such as mortgage property, government securities, Fixed Deposits, savings accounts, gold and precious metals. Muthoot Loans are also offered on the business owner’s personal guarantee or if the property is pledged as a limited or unlimited liability.
Secured Business Loans are an excellent avenue to raise funding. Businesses showing good credibility and more promising returns in the future may get the best Secured Loans. Companies seeking a secured Business Loan can apply for a Muthoot Loan to get funding at low-interest rates.