Check Your Business Loan Eligibility

Businesses require capital to fund their daily expenses and carry out business expansion activities such as buying a new plant or machinery, raw material purchase, etc. In case of financial crunch or expansion, companies may avail of a business loan to get financial assistance. A business loan is a time-bound debt that the company is obligated to repay under fixed terms and conditions.

Some business owners use business loans to pay for daily expenses such as salaries and wages until their new company gets off the ground, while some use borrowed funds for office supplies, inventory or furthering projects. Business owners must make sure to have a clear outline of how the money will be spent since lenders need details on where the borrowed money will go.

Getting a business loan/ SME loan has many benefits. Some of them are:
 

1. Simple Eligibility Criteria

Both big and small businesses can get a business loan depending on their requirements. The eligibility criteria are not too strict and there are separate categories of business loans depending on your company's annual turnover. Key factors that can influence eligibility include credit history, business feasibility and future business plans.
 

1. Attractive Interest Rates

One of the greatest benefits of business loans is a flexible repayment schedule and affordable interest rates so that the borrowers are not pressurised and the repayment doesn't take away business growth.
 

1. Minimum Documentation

The documentation for a business loan is simple. All you need are the following documents:
 

• Duly filled application form
• Passport-size photographs
• KYC documents
• Annual returns of the business
• Business registration details
   

1. Sufficient Loan Amount with Fast Approvals and Disbursement

A business loan gives you immediate access to funds which you can use as per your requirements and ensures that your urgent requirements are fulfilled.
 

1. Pay As You Go

Business loans have a special feature of pay as you go. Under this facility, borrowers are given a credit limit for a chosen tenure. They can withdraw money multiple times within this credit limit and pay interest only on the amount utilised. The EMI's have to be paid on the interest component while the principal amount must be paid only at the end of the tenure. This line of credit helps in meeting the fluctuating business expenses.
 
Also Read: Is my Business Eligible for an Unsecured Business Loan
 

Business Loan Eligibility

 
To understand the qualifying criteria for a business loan in a better way, go through the following pointers one by one. 
 

Who Can Apply for a Business Loan?

There are a couple of pointers that need to be kept in mind before applying for a business loan. Lenders look for certain indicators of business stability as well as the borrower's financial acumen to be sure of their investment. Broadly, the following categories of people can avail of a business loan:

 

1. Self Employed Professionals (SEP)

This category includes allopathic doctors, chartered accountants, company secretaries, architects etc. This is subject to the applicants who have proof of qualifications and also are practising their profession.
 

1. Self-employed Non-professionals (SENP)

This category includes traders, manufacturers and entities of the following kind:
 

1. Partnerships
2. Limited Liability Partnerships
3. Private Limited Companies
4. Closely Held Limited Companies

Mostly the following eligibility and documentation are required to be eligible for a business loan.
 

Eligibility:

• Public, Private, Proprietorship or Self-employed
• Minimum 3 years in the current business
• Business profitability as per industry norms

 

Documentation:

• Last 3 years audited financial statements and projections
• Profiles and KYC of Directors and Partners
• Company constitution documents and registration certificates

 
Another very important set of criteria includes the following:
 

1. Credit History

The borrower must have a good credit history accompanied by a good credit score. Furthermore, while evaluating unsecured business loan eligibility, financial institutions assess not just the borrower's creditworthiness but also the creditworthiness of the business. As such, make sure you are repaying your existing business debt EMIs on time. Otherwise, the lending institution will turn down your application. 
 

1. Business Feasibility

Every business has an expected trajectory that needs to be mapped. Therefore, while evaluating business loan eligibility criteria, lenders must be confident about the future of the business to invest in it. Borrowers must ensure they create detailed pro-forma statements as per industry-approved standards to ensure smooth communication.
 

1. Business Plan

Financial viability will be the single greatest factor in determining a business loan approval. Capital estimates, operational flow and outflows, asset and equipment acquisition and maintenance must be researched and well presented.
 

1. Business Liquidity

Businesses that do not retain liquidity will not be able to survive in today's volatile business environment. When determining eligibility for business loans, the financial institution considers how much cash or bank balance a business maintains. The financial institution grants the business loan if the company's liquidity condition is sufficient for meeting unforeseen events.
 

1. Type of Business

When you check business loan eligibility, make sure you understand the types of businesses that are qualified for a business loan. Financial institutions do not grant loans to businesses that are into speculative business, import-export business with enemy nations, seasonal business, manufacturing of illegal products, and so on. 
 

1. Business Debt-to-income Ratio

When determining unsecured business loan eligibility, financial institutions consider the business debt-to-income ratio. The financial institution will reject your business loan application if it generates significant revenue but is burdened with too many loans or if the majority of the business profit is used to repay the outstanding dues. To grant business loans, the lender usually considers a debt-to-income ratio below 50%. To calculate the debt-to-income ratio, the lender uses the below formula. 
 
Debt-to-income = Total Monthly EMI ÷ Gross Monthly Income
 
Also Read: Know About the Application Process of Unsecured Business Loan
 

How to Calculate Eligibility for Business Loan?

If you are still unsure about new business loan eligibility, simply visit the preferred lender website and use the business loan eligibility calculator to determine whether or not you qualify for a business loan. To use this calculator, all you have to do is enter your city and date of birth. After that, select your net profit, monthly EMI, business loan interest rate, and loan tenure. 
 

Bottom Line

Business loans can be taken to fund salaries, for expansion, buy assets and equipment, upgrade technology or establish new project units. They are the most effective and immediate source of capital for small scale and medium scale businesses and working professionals. The NBFC/financial institutions in India are among the strongest in the world. They are constantly tweaking their products and structure to reach the massive chunk of the populace that is still not using financial services and products. Business loans help companies achieve greater progress with lesser risks and a steady stream of credit which is essential for every growing business.
 
Disclaimer: The post was first published on 22nd September 2017 and has been updated for the latest information, freshness, and accuracy.