Read all about the eligibility criteria for securing a business loan, from credit scores to annual revenue and industry sectors. Learn how meeting these conditions enhances loan approval prospects.
Overview
When applying for a business loan, there are several eligibility criteria that businesses need to fulfil. These criteria vary depending on the lender, but some of the most common ones include credit score, business vintage, annual revenue, collateral, and industry sector.
Meeting these conditions enhances the chances of loan approval. In this article, we will discuss each of these conditions in detail.
Factors Considered While Processing a Business Loan
Credit Score
Your credit score is one of the most important factors that lenders consider when evaluating your loan application. It shows your loan repaying capacity and helps lenders determine the level of risk involved in lending to you. A good credit score is generally considered to be 700 or higher, but some lenders may require a higher score. To improve your credit score, you should pay your bills on time, keep your credit utilization low, and avoid opening too many new credit accounts.
Business Vintage
The length of time your business has been operating is another important factor that lenders consider when evaluating your loan application. Most lenders prefer to lend to businesses that have been operating for at least two years. However, some lenders may be willing to lend to newer businesses if they have a strong business plan and financial projections.
Annual Revenue
Lenders will also want to know how much revenue your business generates each year. This helps them determine whether you have the cash flow to repay the loan. Most lenders require a minimum annual revenue of INR 5,00,000 to INR 10, 00, 000, but this can vary depending on the lender and the type of loan you are applying for.
Collateral
Collateral is an asset that you pledge as security for the loan. If you default on the loan, the lender can seize the collateral to recover their losses. Collateral can be in the form of real estate, equipment, inventory, or accounts receivable. Some lenders require collateral for all loans, while others only require it for larger loans.
Industry Sector
The industry sector your business operates in can also affect your eligibility for a loan. Some industries are considered high-risk, such as restaurants and beauty services, because they are more likely to have inconsistent revenue. Lenders may be more cautious about lending to businesses in these industries.
What Can Enhance the Chances of Loan Approval?
Meeting the conditions mentioned above enhances your chances of loan approval because it shows lenders that you are a low-risk borrower. A good credit score, a long business vintage, and a strong revenue stream demonstrate that you have a history of responsible financial management.
Providing collateral also reduces the lender’s risk, as they have a way to recover their losses if you default on the loan. Finally, operating in a low-risk industry sector can give lenders more confidence in your business.
Eligibility Criteria for Business Loans in India
To apply for a business loan, you need to meet the following eligibility criteria:
- Your business must be registered in India
- Your business must have been operating for at least two years
- Your business must have a minimum annual revenue of Rs. 10 lakhs
Documents Required for Business Loans in India
Financial institutions require the following documents when you apply for a loan:
- Business registration certificate
- PAN card of the business
- Bank statements for the past six months
- Income tax returns for the past two years
- Audited financial statements for the past two years
Vakilsearch Business Loan
Vakilsearch is a legal and financial services company that offers business loans to eligible businesses. Vakilsearch’s business loans have flexible repayment terms, competitive interest rates, and no prepayment penalties.
More About Us
Vakilsearch, is a trusted corporate compliance and financial services company, providing business loans to eligible Indian businesses.
Secure the financing your business needs to thrive! Reach out to our experts today to learn more about us and our offerings!
The Takeaway
When applying for a business loan, it is important to meet the eligibility criteria set by the lender. These criteria typically include credit score, business vintage, annual revenue, collateral, and industry sector. Meeting these conditions increases the chances of loan approval by demonstrating that you are a low-risk borrower.
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