Many prospective business planners have a misconception about getting a business loan as a complicated, time-consuming activity with various challenges countered. According to CRIF High Mark, there has been a 100 % growth between FY17 to FY21 in the Lending market of India. Such growth is evidence of the simple application process, availability of flexible loans, and requirement-specific loan provision practised in the industry.
A business loan is accessible with lesser paperwork and little or no collateral. Below are basic essential business loan eligibility criteria to match your financial needs.
1) Age of applicant and business: In the current market scenario, lender organisations usually have a primary condition of providing loans only to the applicant in the range of age between 25-65 years. This condition is mainly to avoid consequences of non-repayment of loans if given to inexperienced or over-aged persons. A business that operates for a minimum of 3 years has more priority in loan approval. The necessity of a period for which an entity should have been in operation may vary from lender to lender.
2) Good Credit score: It is a performance measure of timely and effective repayment, if any, of earlier debts by businesses and individual persons applying again for a loan. NBFC and Banks use the credit score provided by CIBIL, Experian, or Equifax to evaluate the prospective risk of lending loans to the applicant. Such scores decide the approval of the loan and further credit limits for all approved applicants. The lenders may need the applicant to have a Personal credit score of 700 and above. Some loan providers consider Business credit scores using models like Dun and Bradstreet Paydex. Business Loan Interest rates are prone to low credit scores, due to which a high-interest rate for that loan may be applicable.
3) Revenue history and potential in the future: Financial Institutions usually have a minimum level of turnover requirement pre-decided depending on the type of loan. Some lenders only ensure whether an upward trend exists in the Revenue from records like Bank statements and Income Tax Returns. Future projections are crucial in the case of startups. Lenders are more concerned about future revenue potential based on your business plan. These facts require you to make a detailed outline of how and when you plan to use the funds with specific goals, realistic assumptions, and a reasonably-acceptable growth forecast.
4) Financial Performance: To assess how strong a business is in financial terms, lenders often refer to the profits achieved by that business. Your business should be profit-making for three consequent financial years on the date of applying for a loan. Sometimes, they also review ratios like the Debt service coverage ratio (DSCR) and Debt to Income ratio(DIR). This control enables them to check your capability to manage an additional loan with the help of a business loan EMI calculator.
5) Document requirements:
- Copy of Passport/Driving licence/Voter ID/Aadhaar card, and
- Application copy with passport-size photographs affixed.
- Profit/Loss statement for the past two years,
- Balance Sheet (audited by a CA),
- ITRs for the last two years, and
- Bank Statements for the past six months.
- A copy of ownership papers,
- Partnership Deed agreement, or Sole Proprietorship declaration,
- PAN Card,
- Articles of Association,
- Registration of Incorporation, and
- Memorandum of Association documents.
Due to the dynamic market growth, changing technology, and social conditions, quickly accessing the loan would become a primary objective of the entities. Businesses need a risk-taking approach, while lenders are always sceptical and concerned with the money lent. Smartness lies in enhancing your capabilities rather than avoiding opportunities.