Business Loan Eligibility Criteria

 

Your eligibility for a business loan will depend upon multiple factors, varying from one lender to the other. The primary criteria of course will be whether you’re found capable of repaying the loan or not. Banks and NBFCs offering business loans to customers run all kinds of checks on the concerned businesses, including their future scope, financial statements, profits, annual revenues and more. For instance, the lenders will make a fair assessment of your repayment ability by gauging the kind of organization you wish to create, or have already created. It is only after carrying out all these comprehensive checks, they will determine the minimum and maximum business loan amount you are eligible for. Furthermore, considering the fact that business loans normally don’t require any collateral, the lenders are extra careful during the approval process and take all measures to ensure that their investment is secure.

In case, you wish to quickly learn about the business loan amount you’re eligible for, you can make use of the business loan eligibility calculator available on our website. You’d need to enter your net profit per month, any existing loan commitments, the required business loan tenure and expected interest rate, to calculate the figure. Being aware of your business loan eligibility can prepare you for what lies ahead and enable you to take corrective measures to ensure a hassle-free loan process. Below-detailed are some of the major factors that all big banking establishments and NBFCs consider while approving the business loan applications:

It is important for potential lenders to ascertain the annual turnover and profit of your business to decide the quantum of the business loan and whether they’ll be able to offer a loan at all or not. The required annual turnover and profit figures would vary from lender to lender. The bank/NBFC will ask you to submit your previous and current financial statements in this regard. Any type of financial instability owing to mismanagement is usually not a healthy sign and can negatively impact your eligibility.

Business loan customers can be of various types. While some might be a private limited company, others might be salaried or self-employed individuals. Banks and NBFCs get business loan applications from all kinds. The offered interest rate, loan tenure, eligibility criteria, measurability etc. will differ depending upon the customer type. Hence, you must know about the customer category you belong to while applying for a business loan, and check your eligibility criteria for the same. Following are some commonly known business loan applicants:

  • Business Entities: Partnership Firms, Private Limited Companies, Limited Liability Partnerships and Closely-Held Limited Companies
  • Self-employed Professionals: Allopathic Doctors, Interior Designers, Architects, Company Secretaries and Chartered Accountants
  • Self-employed Non-Professionals: Manufacturers and Traders
  • Other Entities: Businesses having other constitution types are also considered by the banks and NBFCs based on their profiles.

A great multitude of banking establishments give preferential treatment to individuals and businesses who already have a business relationship with them. Having an account with the concerned bank can enable the latter to easily carry out a fair assessment of the applicant’s repayment capacity, by looking at the past transactions with them. Furthermore, being associated with the prospective lender can inspire a lot of confidence in it.

Every bank and NBFC reviews the creditworthiness of the individual applicant while processing his/her business loan application. Having a good credit rating can significantly increase your chances of getting not just a business loan but getting it on your terms. Outstanding loan amounts, fraudulent financial activities, defaulted payments etc. can all negatively impact your credit score and hence the chances of getting a business loan. Even if one bank rejects the business loan application on this account, there is a high likelihood that no other bank will extend the business loan, unless you pay an exorbitantly high interest rate.

Age is another factor that plays a very critical role in determining the repayment capacity and eligibility of the business loan applicant. Lenders usually welcome self-employed business owners/individuals who fall in the 24 years to 65 years age bracket.

Other than that, the business should also be stable as per records, in order to increase the loan’s chances. The person applying for the business loan should have been running the business for at least the last 3 years. In addition, you should have at least 5 years’ experience in managing stable businesses. In the event that the business income is found to be unstable and the profit is marginal, the bank/NBFC might ask you for a collateral.

Having any outstanding loan at the time of business loan application is most likely to negatively impact your eligibility. There is a high chance that the bank/NBFC might not sanction a very high amount or it might even reject the application outright. As the business loan amount is calculated based on your ability to pay a certain EMI every month, already paying a specific amount towards another loan can reduce your repayment capacity and hence the amount of sanctioned business loan.