July 15, 2024

What You Need To Be Eligible For The Best Business Loans in India?

A business loan can help small and medium-sized companies pay for expenses like office supplies, building rents, employee salaries, marketing costs, etc. Today, several NBFCs offer unsecured business loans with flexible repayment terms, competitive interest rates, and numerous other benefits that financially help SME owners.

The best business loans in India come with quick approval and disbursal. However, before applying for a business loan, one must have a clear business roadmap and how they plan to spend the borrowed amount.

Establishing a business and taking it to the global level is a dream for many. Here, you will understand the business loan eligibility criteria and other things necessary to get a business loan in India.

Meet the Business Loan Eligibility Criteria

Although each NBFC has different eligibility criteria for SME loans, the standard things they check are essentially the same. However, depending on the lending institution’s policy, they might have different conditions. Here are some common MSME loan eligibility conditions that one must meet to quality:

Age of the Applicant: The applicant’s minimum age should be 21 years or above. For many, the upper age requirement varies between lending institutions, which is 65 years.
Who Can Apply: The business should be a private limited company, proprietorship, partnership firm, or closely held non-listed company in the trading, services, or manufacturing sector.
Business Vintage: The business should be operational for at least three years and filed ITR for the past year. A CA should have audited the business’s last 24 months’ financial statements and annual turnover.
Credit Score: Credit score is a crucial criterion to determine small business loan eligibility. A score of 700 or above is excellent.

Documents Required for the Best business loan in India

Most Indian NBFCs ask for the following documents before approving business loans:

Duly filled loan application form
A recent passport-sized photograph with a current appearance
Identity proof, including Aadhaar Card or PAN Card
Address proof, including Aadhaar Card, voter ID, passport, driving license, or last two months’ utility bills
Financial documents, including PAN card for the firm, company, or individual applying for a loan, GSTIN, last six months’ bank statement, recent ITR form along with income computation, profit & loss account, and audited balance sheet for the previous two years, and proof of business continuity for the last three years like sales tax certificate, ITR, trade license, establishment, etc.

Besides these, the lending institution may also ask for other documents according to their policy or requirement. The business age, turnover, nature, creditworthiness, other financial obligations, and credit history are other factors determining loan eligibility. Go through the selected lending institution’s terms and conditions thoroughly before applying.

How to Check Business Loan Eligibility?

To check whether an entrepreneur qualifies for an SME loan, they can check the eligibility criteria on the preferred NBFC’s website. Usually, the factors determining eligibility include age, business nature, profitability, turnover, DTI ratio, etc. However, the approval depends on the credit score, business vintage, business continuity and performance, profitability, revenue steadiness, etc.

Based on their loan requirement, the applicant can also use a business loan calculator to calculate the EMIs of the required amount. It’s a free-to-use online tool available on the websites of new-age lending institutions like Clix Capital.

Factors Determining business loan Eligibility

Anyone from an SME owner to a multinational entrepreneur can apply for a business loan. However, lending institutions determine each applicant’s eligibility based on several factors mentioned below:

Credit History: Credit score is an important parameter that NBFCs check to determine a borrower’s repayment capability. A high credit score above 700 assures timely repayment with minimal chance of default. Lending institutions look into the business owner’s repayment history on other liabilities and loans they have. A good credit score will help get the business loan easily with attractive interest rates and better terms.
Business Stability: The business’s financial stability is crucial to sanction a loan. Lending institutions look into its sales and profit aspects by looking into their business existence. Usually, lending institutions prefer businesses with at least three years old operations. The more experienced the business owner is, the greater their chance of getting the best business loan in India with reasonable interest rates.
Business Continuity and Profitability: Another important thing that NBFCs check is business profitability. NBFCs refrain from lending money to companies that are not doing well and struggling to meet their ends. That is why they ask for the company’s profit & loss statement for the last few years. So, an organisation’s revenue and profitability are crucial for determining its business loan eligibility.
Current Relationship with the NBFC: The business owner’s current standing with the NBFC is very important. The lending institution may also look into the applicant’s existing relationships with other financial institutions. They determine eligibility based on the applicant’s payments, cash flow, and repayment history on existing loans.

Tips to Improve business loan Eligibility

Looking for a business loan but suspect eligibility? Here are a few tips that help:

Plan Properly: Before submitting the loan application, evaluate expenses and know how much to borrow. A proper business plan will give the lending institution confidence in sanctioning the loan with a reasonable interest rate. The plan should also elaborate on the purpose of borrowing a loan and its foreseeable financial outcome. It should ensure business growth and stability while addressing the risk and security factors.
Keep the Documentation Strong: business loan providers demand several supporting documents about the business vintage and performance. Ensure you have all the latest proofs and documents to support the business loan application. Avoid ambiguous or misleading information or documentation. Proper documentation assures genuineness and increases eligibility for the best business loan in India.
Seek Loans Under Government Schemes: The Indian government has several schemes to support the MSME Sector financially. These include the CGTMSE credit scheme, MUDRA Yojana, PMMY Scheme, etc. Study these schemes and choose one that best suits the current funding needs.

Many SME owners borrow business loans to cover expenses like restocking inventory, hiring staff, buying machinery, marketing, building working capital, etc. Since these are unsecured loans, borrowers do not need to pledge assets as security against the loan. However, use a business loan calculator to select a loan term with affordable EMIs to ensure timely repayments.

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