1. Choose publicly held lending institutions over private lenders.

Generally public institutions have greater capital cushion and can afford to lend at lower rates than private lenders. Retail banks lend at lower rates since their cost of raising capital is around 200 to 300 basis points lower than wholesale lenders.

2. Verify lender is approved

Make sure that the lender is licensed to carry out such transactions. For example, a Non-Banking Finance Company should display its RBI certification. Approved lenders can collect deposits, which lowers their cost of funds. Also, regulations restrict institutions from having spreads over 300 basis points. For example, if they borrow at 5 percent, they cannot lend at more than 8 percent.

3. Ask around.

Business brokers and other businesses can be a valuable source of information on different lenders. Inquire about the responsiveness of a bank and whether it is a member of the CGTMSE. CGTMSE member lenders can offer more financial products since the government guarantees up to 80 percent of the loan amount.