Struggling to raise money? AI-powered bank loans from Loan Frame can help | Economic Times

Rising non-performing assets (NPAs), overleveraged large companies and the general unwillingness of banks to lend money has meant small businesses are now finding it next to impossible to raise money. As loan portfolios sour, banks do not want to take the risk of lending to an SME.

Coupled with that is the fact that a large number of small businesses have no access to formal sources of finance, are under banked or have little or no credit history. For these businesses, there is no chance of getting a bank loan. It is with this understanding that a troika of entrepreneurs banded together to start Loan Frame.

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What Are The Eligibility Challenges Associated With Business Loans In India? | StartupBuzz

Whenever an SME (Small And Medium-Sized Enterprises) business wants to get business loans, it can get very frustrating because most of the qualities required to get the loan are structured with big businesses in mind. This is understandable because financial institutions would like to plug into developing companies but they do not want to bear a large proportion of the risk that comes with this move. It is, therefore, a common trend that SME businesses in India have limited options when it comes to capital financing. However, this is not only particular to India as developing countries also face these impediments.

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When your Credit Score determines your Interest Rates

A credit score is a major deciding factor for banks to grant you loans and also to decide the terms and conditions on which the loans are to be given. Banks prefer borrowers with low outstanding balances, long credit history and high credit score. A good credit profile and high credit score are viewed positively by lenders. It also puts the borrowers in a position to bargain for better terms and conditions and draw loans at best available rates. On the other hand, it might get difficult to even get loans with poor credit score, leave aside the question of interest rates. Hence, it can be rightly said, “better the credit score, better the interest rates”.

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Decoding Return on Net Worth!

Financial ratios are used by lenders to make a decision on whether to provide finances to a business or not. These ratios can be used to evaluate the overall financial position of a business. To build up a strong credibility before its lenders, a business must strengthen its financial ratios.

The financial ratios are classified into four main categories, namely, liquidity ratios, activity ratios, solvency ratios and profitability ratios. Profitability ratios are a measure of the profitability and earnings of the business. One such important ratio which draws the attention of investors is the Return on Net Worth.

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Analyzing your Accounts Receivables!

A business may extend credit to its customers for the goods sold & services rendered to them and frame appropriate credit policy suitable to the business. Credit policy indicates the credit period that a company will offer to its customers. A credit policy should not be too liberal that it results in defaults, nor should it be too strict that it restricts sales. Ageing analysis of accounts receivables helps a business in framing an appropriate credit policy and also helps to analyze the category and quality of its debtors.

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Do you Understand Debt Service Coverage Ratio

Debt service coverage ratio is a ratio commonly used by lenders to assess to the credit worthiness and financial health of a business. It gives a comfort to the lenders if the company generates sufficient cash to pay off its current portion of debt as and when due. Before putting any funds in a business, the lenders also need to be sure that their money would be safe and would indeed be repaid in time. Debt service coverage ratio serves the purpose.

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Are You Adequately Geared? We Tell You How to Find Out

Gearing Ratio evaluates the financial structure of the company. It indicates the ratio of capital raised through debt to that raised through equity. In other words, it is the measure of financial leverage of a company. It is also known as Debt-Equity Ratio.

It can be computed by dividing the company’s total debt (both long-term as well as short term obligations) with the shareholders’ equity. Thus,

Gearing Ratio/Debt-Equity Ratio = Total Debt/ Total Equity

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5 questions to ask before you get an Unsecured Small Business Loan

Once you have decided to apply for a small business loan, it helps to have an understanding both of your circumstances as well as the business loan lender’s perspective. This will help to improve the odds of success, and apply for a loan type and amount that is suitable to both your needs and your capacity.

Here are 5 important questions you should ask and answer before you apply for an unsecured business loan:

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The Most Important Metric Banks Look At For Your Business Loan

Banks & Financial Institutions consider various factors to assess your credit worthiness whenever you apply for a loan. Fixed Obligations to Interest Ratio (FOIR) is one of the most important elements of the credit appraisal process of any business or individual. This ratio helps in determining their loan eligibility by comparing the Current Fixed Obligations of the applicant to his/her Net Monthly Income.

The Current Fixed Obligations include all the fixed monthly obligations of the customer but exclude the statutory deductions such as monthly Provident Fund contributions, Insurance Premiums, Professional Tax, Charity, Recurring Deposits, etc., which in turn help in determining his/her maximum monthly repayment capacity.

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