Business Loan Eligibility: All you need to know about business loan approval
11 November, 2024 | 14:42 IST
Business loans, whether for small enterprises or large companies, come with predefined eligibility criteria. The loan approval conditions may differ depending on the lender. However, most of the lenders take into account a range of factors like credit history, income, age, business experience and financial stability before approval of a business loan.
Meeting the eligibility criteria not only improves the likelihood of loan approval but also secures more competitive interest rates for the business owner.
For those looking for quick access to capital, online platforms like Moneycontrol provide access to instant loans up to Rs 15 lakh in partnership with four lenders. You can apply for loans starting at an interest rate of 12% per annum through a completely digital process.
Here are some of the most crucial eligibility considerations for securing a business loan:
Age of the applicant: Most financial institutions have age requirements for loan applicants, generally setting the minimum at 21 years and the maximum between 60 and 65 years at the time of loan maturity. This range ensures applicants have the work experience to handle business responsibilities and enough working years to payoff the loan.
Credit score: A credit score is an essential indicator of an applicant’s creditworthiness. Usually, a score of 750 or above is favourable for business loan approval, as it reflects a solid history of timely payments and responsible credit usage. Those with lower scores may still qualify but may be subjected to higher interest rates or limited loan amounts.
Business stability and track record: Many lenders require businesses to have been operational for at least three years to establish credibility and stability. This requirement shows that the business has withstood early challenges, has consistent cash flow and could be less risky to fund.
Annual turnover and profitability: Lenders require businesses to meet a minimum annual turnover requirement, demonstrating that the company generates enough revenue to manage loan repayments. Additionally, a consistent track record of profitability may enhance business loan eligibility.
Documentation requirements: Financial institutions require specific documentation for approval of business loans. They may need the documents to verify the applicant’s information, financial status and business legitimacy. Having these documents readily available can expedite the application process and reduce potential delays.
While each lender may require slightly different paperwork, there are some universal documents most applicants will need:
Identity proof and address proof: Passport, Aadhar card or voter ID for identification and location verification.
Business registration documents: Proof of business registration and licences can show the legal standing of the business.
Bank statements and financial statements: Usually covering the past six to 12 months, these statements provide insights into cash flow and financial stability.
Tax returns: Business and personal tax returns from the past two to three years help establish income stability.
Profit and loss statements: These statements reflect the company’s profitability and help the lender evaluate repayment capacity.
Following these steps can help streamline the process and improve the chances of getting a business loan:
Assess business loan eligibility: Before applying, applicants should assess their own eligibility based on the above criteria. Understanding this in advance can save time and prevent rejection of applications. This will also help you to choose the most suitable loan offer and the lender.
Gather the necessary documentation: Ensuring all documents are in order before applying can streamline the application process, reduce the likelihood of errors and avoid delays.
Submit application and complete verification: Once the application is submitted, lenders will verify all details, review documents, and may request additional information if needed.
Await approval and disbursement: Following approval, funds are usually disbursed within a few days, depending on the lender and the applicant’s bank.
You can also access multiple loan offers on the Moneycontrol app and website without any paperwork. Applicants can enter their details, complete KYC, and set up EMI repayment in three easy steps, making the process swift and convenient.
The time it takes for business loan approval and disbursement varies. Here are factors that can influence the timeline:
Type of lender: Traditional banks may have longer processing times due to more stringent checks, whereas digital lenders, like those partnered with Moneycontrol, generally offer quicker approvals through streamlined online processes.
Documentation: Incomplete applications or missing documentation can lead to delays. Ensuring that all required documents are submitted can save time.
Loan amount: Higher loan amounts generally require thorough scrutiny, which may extend the processing period.
In conclusion, understanding business loan eligibility criteria is the first step towards securing financing for your business. From age and credit scores to industry type and profitability, meeting these requirements can significantly improve your chances of approval. Additionally, having the necessary documents and selecting the right lender can expedite the application process.
Summary
Understanding and meeting business loan eligibility criteria can increase your chances of getting an approval and securing the better interest rates. This article covers eligibility factors, documents required, steps to apply and factors affecting business loan processing time.
Disclaimer
This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.
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