Professional degree-holders have a huge upper hand over academic degree-holders. Yes, as true as this statement is, it would also not be false to say that when it comes to the business world, it all boils down to one thing- finances. Capital is an essential and indispensable element of any new venture-whether it is setting up a new firm or expanding an existing business.
Whether you are an architect wanting to lay the foundation for your new firm or a Chartered Accountant with plans to start your own practice or a doctor whose dreams are bigger than his little dispensary, capital is your bane and boon.
Forget setting up or expanding a business, without adequate financial resources, even the smooth running of your professional services could become a challenging task. Salaries, fixed costs such as rent, and many other day-to-day expenses need to be met in order to survive as a professional business. All of this again requires funds.
However, it is not possible to dip into one’s savings or have a large enough corpus saved up in the first place to fund the needs of your professional business. This is where a professional loan can provide you with just the financial cushioning that you need.
Professional loans enable you to capitalize on that degree you have worked so hard for. The best part of this bargain is that getting a professional loan has never been easier. The entire borrowing process at PF right from application to approval is quick and hassle-free. However, there are certain essential aspects that you, as a professional services provider, must consider before taking a professional loan. Fundamentally, try looking at these aspects as basic questions that you need to address before applying for a professional loan.
1. Which goals are you looking to fulfill?
Professional loans are easily available these days. But it would not be a financially smart move to take credit for trivial expenses just because of easy access and availability. You need to answer this simple question – Why are you taking the loan? What is the objective(s) you are looking to achieve? Do you need financial assistance for important purposes such as:
- Purchasing equipment?
- Expanding your business?
- Buying or constructing a new office space?
- Funding your working capital requirements?
You should be able to justify and reasonably back the debt component reflecting in your financial statements.
2. Determine your required loan amount
I need an X amount in order to fund my plans. Can you back that figure with real numbers? How reasonable and rational is your required debt amount?
Calculating your required loan amount will ensure that you don’t end up borrowing an extravagant amount just because you are eligible for it. Conversely, it will also ensure that you do not underestimate your loan requirement. If you borrow too much, you may end up struggling with your repayment schedule. If you underestimate your loan requirement, you may find the borrowed amount insufficient to execute your plan. This may force you to apply for a second loan which could have been avoided had you calculated your loan amount.
3. Calculate how much you can afford to borrow
Apart from calculating how much you need, another essential aspect that borrowers must look into is how much you can afford to borrow or rather how much you can afford to repay. A rule of thumb is that you must never borrow more than you can repay. Your repayment schedule must not overly burden your cash flows. Your debt to income ratio will be a clear indicator of how much you can afford to repay. Also, take a hard look at your cash flow and the expected returns for your business.
4. Have your documents in order
Although taking a professional loan is now a hassle-free process that involves very little paperwork, it is imperative to have your business documents in order. Before you apply for a professional loan, be sure to have the documents of your firm or company in order, apart from having your own personal documentation in place. In addition, it is always a good practice to maintain proper books of accounts and reports such as your balance sheet, profit and loss accounts, cash flow statements, audit reports, etc.
5. Know your credit score
Before you consider applying for a professional loan, request a copy of your credit report highlighting your credit score. Ensure its accuracy and also check for any errors. A high credit score provides you with the best opportunity for securing a low-interest loan while a low-level credit score will come with a higher interest rate. Both your personal credit score and your business credit score will influence your ability to procure a cost-effective loan.
Taking a professional loan is one of the most crucial decisions that you as an entrepreneur will take. Apart from these important considerations, be sure to examine the loan terms carefully.