Five Habits of Highly Effective Business Loan Borrowers

Effective business borrowers achieve success by finding the right overlap between business needs, loan products and the following compliance and here is what you need to know

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From machinery to manpower, running a business entails consistent funding. Business Loans are one of the key pillars of these funds. But the process and ability to secure a business loan stems from a sound financial acumen. A highly effective business loan borrower is not only creditworthy but also understands the business' credit requirements in-depth. Here are five habits that we find are most common to savvy and successful SME borrowers:

Determining the Business' Credit Needs

From cash credit to a term loan, every loan product comes with different interest rates, disbursal structure, repayment timelines and collateral requirements. Due diligence to understand one's business need for credit and quantum of potential benefit derived from the credit is a must to engage with a lender profitably. Effective borrowers are also aware of key factors like pre-existing business debt, business credit score and business revenue trends that play an important role in the loan approval process.

Maintaining a Strong Credit History

Effective borrowers exercise utmost discipline in loan repayment. Credit is the lifeblood of any business and provides a great degree of financial flexibility to the businessman for growth. The effective borrower will always avail the line of credit and strictly follow the repayment schedule to not only generate higher returns but also create a sound financial track record i.e. credit history. Having a good credit history in business as well as in personal life enables better deals in future loan endeavours.

Being Aware of the Fine Print

Business loans are complex products with a comprehensive set of terms and conditions that may become relevant only after some time. These terms should be conducive to one's current and future business needs. From prepayment facility to foreclosure charges, being thoroughly aware of how well one's line of credit is aligned with one's business goals is a recipe of success. Having a CFO with good financial know-how will make the process smoother but in the absence of a Financial officer, consulting loan agents or even resourcing dedicated online applications will help borrowers become better informed.

Getting Offers From Multiple Lenders

Simply put, "Shop Around'. Reaching out to multiple lenders to avail multiple business loan offers might be a tedious process but an effective business loan borrower knows that in the world of credit one-size-fits-all doesn't exist. Every lender will have a different outlook and lending policy towards different businesses and segments, so it is best to generate multiple offers and choose the best fit. As there is no dearth of loan venders available in the market, multiple offers also provide the chance for a borrower to compare rates and use the research as leverage to negotiating good deals.

Engaging a Professional Loan Agent

An effective business borrower understands that engaging and dealing with multiple potential lenders can eat up a lot of time and resources. Hence, efficient ones hire a subject matter specialist to help them avail multiple offers tailor-made to their business needs. These specialists may range from professional loan advisors to one's Chartered Accountant or Financial Advisor. Availing professional help to augment the rationale of one's business borrowing decisions delivers the best results.

To conclude, effective business borrowers achieve success by finding the right overlap between business needs, loan products and the following compliance. They are shrewd and work closely with professional intermediaries to get the best deal, conduct extensive market research, go through the fine print with a sharp eye and have all the necessary paperwork. Effective borrowers also follow stringent discipline in maintaining and updating their business accounts. Once the loan is availed, they are diligent about paying their loans on time so that the doors of any lender are open once they have any future credit requirements.