Business loan eligibility criteria that most Banks or NBFCs require their applicants to fulfill before loan sanctioning are as follows. The eligibility criteria may differ from lender to lender and usually depends on the applicant’s profile, nature of business, business requirements as well as various other related factors.
The Purpose of Availing Business Loan
Business loans can prove to be a knight in shining armor and come to the aid of individuals, business owners, startups, self-employed professionals, entrepreneurs, as well as MSMEs who usually want additional or urgent funds to meet working capital requirements, for business expansion purposes, as well as to buy machinery/equipment, to pay-off rent, salaried, debt or managing business cash flow. Moreover, there are specific and different business loan eligibility criteria, as defined by the respective lenders wherein the applicants must qualify for availing various business loans.
Factors Regulating Business Loan Eligibility
The key factors that usually determine Business Loan eligibility are as mentioned below:
- The Applicant’s age: Must be Minimum 21 years at the time of loan application & Maximum 65 years at the time of loan maturity
- Nature and type of business: Must fall under individuals, Startups, MSMEs, Sole Proprietorships, Partnership Firms, Public and Private Limited Companies, Limited Liability Partnerships, retailers, traders, manufacturers, as well as other non-farm income-generating business entities engaged only in the services, trading, and manufacturing sectors.
- Applicant’s credit score, financial history, and source of income: 750 or above often Preferred by most private and public sector banks.
- Business stability, vintage, turnover, and profitability: Minimum 1 year, business location to always remain same
- Applicant’s repayment capabilities & creditworthiness
- Details of collateral/security to be submitted in the case of secured business loans
- Loan defaults, if any, or loan repayment history
- Indian citizens, should not have defaulted on any previous loan(s) with any lender
- Applicants must own either a residence, office, shop, or godown
- Shall be defined by the Bank/NBFC
List of Documents Required
- A duly filled application form with Passport-sized Photographs is essential
- KYC documents of applicants, partners, and co-applicants: Passport, Aadhar card, Voter’s ID card, PAN card, Driving license, Utility Bills (Recent Water or Electricity Bills)
- Last 6 months’ bank statement of income proof
- Last 1 year ITR for the existing enterprises
- Business Incorporation along with Establishment Certificate
- Address Proofs and Business VintageÂ
- Any other document which is required by the lender at that time
Various Types Of Business Loans
Certain Banks, unlike equity investors, have robust structures as well as methodologies for lending depending on numerous factors. Therefore, before you apply for a business loan, you should familiarize yourself with the various business loan programs offered by the bank and apply for the right one.
For instance, the government has various schemes significantly available for MSMEs, which many NBFCs provide.
Typically, there are two types of business loans:
Secured Loans
These are loans where the borrower usually pledges an asset as collateral. During non-payment of the loan amount or default, the collateral ownership will then be transferred to the bank, non-bank financial company, or lender. For any secured or small business loans, it is essential to meet this eligibility to post collateral.
Financial institutions, later on, resell collateral to recover outstanding loan payments. Lenders may not immediately confiscate your collateral. If their EMI payment is a few days late, their bank or NBFC will give them enough time to pay. Moreover, if one continues to fail to pay, they will need to forfeit the collateral.
Unsecured Loans
An unsecured loan is usually one where the risk lies more with the lender than with the borrower. For business funding, getting an unsecured loan may seem to be considered more tricky. However, if the amount one needs is small, they can perhaps avail of a business loan.
Significantly, the approval levels for unsecured business loans depend on the creditworthiness of the borrowing bank or other non-bank financial company. Thus, if they’re looking for an unsecured loan, make sure their business has well-defined capital needs as well as a commendable credit history.
