Growing your business often requires financial support. Business loans are important resources in realising entrepreneurial aspirations.
Here, we will explore the essential components of obtaining a business loan – eligibility criteria and required documentation. Understanding the fundamental prerequisites is vital for business owners navigating the financial landscape.
Whether you’re an experienced business owner or a budding entrepreneur, comprehending the intricacies of business loan eligibility and required documents is key to accessing the capital necessary for growth and expansion.
Join us as we unravel the vital aspects of securing financial backing for your business endeavours.
Business Loan Eligibility
Basic Eligibility Criteria For Business Loan
- Individuals should be Indian Citizens
- Individuals should have a minimum income of ₹30,000
- Indian Citizens/Residents should be 23 years and above
- Individuals must have filed the latest ITR
- Credit score should be more than 750
- Bureau Vintage should be at least 2 Years
Business Loan Documents
Basic Documents Required for Business Loan
- ID Proof – PAN Card
- Permanent Address Proof – Aadhaar Card/Driving License/Passport/Electricity Bill
- Current Address Proof (If different from Permanent Address) – Utility Bill/Registered Rent Agreements
- Owned House or Office Ownership Proof – Property / Municipal Tax Receipt /Latest Electricity Bill
- If Rented – Rent Agreement
- Business Establishment Proof – GST Registration/Shop Act/ITR Saral Copy/Bank Current Account
- Udyam Aadhaar
- Business Photograph – 4 Photographs (Entrance, Sign Board, Indoors and Locality)
- Bank Statement – Last 6 months
- GSTR – Last 6 months GSTR 3B
Additional Documents Required For Pvt Ltd Entity
- Photo of Applicant
- Individual KYC of Directors and PAN to be collected
- Board Resolution
- MOA/AOA (Form 32 if any change in director’s name in MOA)
- Latest CA-certified Shareholding Pattern
- Audited Financial if Applicable
Additional Documents Required For Partnership Entity
- Photo of Applicant
- Individual KYC of all partners to be collected
- Partnership Deed
- NOC from other partners
Factors that Determine Business Loan Eligibility
Credit History
When reviewing your business loan application, one of the first things lenders look at is your credit score since they want to be sure about the repayment of the loan amount. If your credit score is low, loan approval may be difficult.
LoanTap prefers borrowers with a credit score higher than 700. A high credit score is an indication of how well a borrower can manage their finances and if they will be able to repay the loan. Lenders may view you as a high-risk borrower if your credit score is below 700.
Type of Business
The type of business you run is a major factor in whether you can qualify for a loan. Lenders frequently evaluate the sector, its stability, and the risks involved.
Certain industries might be seen as more secure and profitable than others, which would make companies operating in those fields better candidates for business loans. A lender’s choice may also be influenced by market trends and adherence to industry laws.
Age of Business
One of the important considerations is the maturity of your company. Lenders typically view less risky enterprises as those that are well-established and have a track record of success.
Younger businesses or startups may be subject to more risk because of their inexperience with finance. Lenders frequently choose companies that have a track record of steady operations that shows their dependability and sustainability.
Profitability
One important factor is the position of your company’s finances. Lenders use the profitability of your business to determine how likely it is to repay the loan.
To assess the profitability and financial health of the company, lenders may carefully review tax returns, cash flow patterns, and financial statements.
How to Improve Business Loan Eligibility?
Maintain Good Credit Score
The foundation for being eligible for a business loan is having a good credit score. Regularly check your credit score and keep it high by managing credit responsibly, paying your bills and loan EMIs on time, and lowering your outstanding debt. Your creditworthiness is evaluated by lenders using this score, and a higher score raises your chances of getting approved for a loan.
Show Financial Stability
Lenders favour companies with a solid financial position. Show steady profitability and a healthy cash flow by keeping accurate financial records. Lenders will feel more confident about your company’s financial stability if you have transparent income statements, balance sheets, and financial statements.
Have All Documents Handy
Get ready to apply for a business loan by gathering a complete set of supporting documentation. Usually, this consists of tax returns, financial statements, company plans, and other relevant paperwork. Having these available not only speeds up the application process but also demonstrates to prospective lenders the diligence and openness of your company.
Business Vintage
Your company’s age, also known as the “business vintage,” plays a major role in whether you qualify for a loan. Reputable companies with a track record of success are seen as lower-risk borrowers. If at all feasible, hold off on applying for large loans until after your company has been in existence for a few years. Lenders will view this as evidence of stability and increased credibility. LoanTap needs a bureau vintage of 2 years.
Conclusion
A business loan’s eligibility is a complicated process that calls for thoughtful preparation and a thoughtful interplay of financial factors. Important actions include keeping your credit score high, demonstrating your financial stability, and organising all of the necessary paperwork.
Your company’s age is a progressive asset that grows with maturity and increases your ability to get larger loans. In addition to increasing the chances of acceptance, a well-prepared loan application supported by a strong financial basis lays the groundwork for long-term, profitable company expansion.
FAQs
What is the minimum credit score required for LoanTap business loan eligibility?
LoanTap requires a minimum credit score of 700. However, higher scores enhance eligibility and may lead to more favourable terms.
What documents are essential for a business loan application?
Necessary documents include ID Proof, Permanent Address Proof, Current Address Proof (if different from Permanent Address), Owned House or Office Ownership Proof, Rent Agreement (In Case Rented), Business Establishment Proof, Udyam Aadhaar, Business Photograph, Bank Statement, GSTR.
Can a new business qualify for a loan?
lenders usually prefer businesses that are already established, but some lenders may provide a business loan to start-ups.
Does the age of my business impact eligibility?
Yes, the business vintage is a factor. Established businesses with a proven track record are often more valued. Lenders may prefer businesses with a few years of operational history.
How can I enhance financial stability for better loan eligibility?
Focus on maintaining consistent profitability, positive cash flow, and responsible financial management. Having clear and transparent financial records builds trust with lenders, improving your business’s overall financial stability.
