5 Steps to Becoming Eligible to Avail a Business Loan
According to the Boston Consulting Group, the Indian online lending market will become $1 trillion in the next 5 years.
Simpler loan application procedures, exceptional customer support, and customised products has helped the finance market in this country to become a massive sector today. NBFCs and fintech companies are at the helm of this sector which delivers a severe competition to the commercialised financial institutions.
These companies have made it easier for customers to avail a business loan and successfully implement a big project.
However, you have to become eligible for that. Only those satisfying the terms will be able to receive financing in 24 hours.
Few steps that you can follow to become eligible include:
Step 1. Fulfil the eligibility criteria
The first step to becoming eligible for business loans is to fulfil the criteria. The criteria differ from lending institutions.
However, the general acceptance is that you have to be between the ages of 25 and 55 years with a business that is at least 3 years old. There might be other criteria that you have to satisfy.
Step 2. Provide the necessary documents
NBFCs and fintech companies have played a key role in reducing the documentation procedure.
Currently, you have to provide the following:
- KYC documents – PAN, Voter ID, Driving License, Aadhaar, Passport, etc.
- Proof of business constitution – Memorandum of Association, Articles of Association, GST registration, Trade License, etc.
- Financial documents – Balance Sheet, Profit & Loss Account, etc.
- Income tax returns of the previous year.
- Bank account statement of the last month.
The above list is indicative. Such criteria vary between lenders. Financial companies may necessitate the borrower to provide additional documents to fulfil their business loan eligibility.
Step 3. Have a high credit score
You must hold a credit score of 750 or more to apply for business loans. A high CIBIL score vouches for your creditworthiness and ensures that you can repay the loan without defaulting.
How to increase credit score?
A credit card can help you increase your CIBIL score quickly and easily. Your credit score will improve if you pay your total payment due within the deadline and keep the credit utilisation under 30% of your credit limit.
Step 4. Lower your fixed monthly obligations
Ensure that you have repaid all your existing loans and cleared your credit card debt before you apply.
Financial institutions may check your Fixed Obligations to Income Ratio (FOIR) as part of their business loan eligibility criteria. It is the ratio between your monthly income and fixed monthly obligations.
You must ensure that the ratio is not more than 50%, i.e. your monthly debts must not be more than 50% of your income.
Step 5. Create a sound business plan
Some NBFCs may require you to provide a business plan when you apply for a loan. This plan must be robust and have the power to convince the lenders.
A sound plan must include:
- Overview of your business.
- Products/services your offer.
- Feasibility test of your business.
- Marketing and sales strategies.
- Management team.
- Future financial estimates.
You can also mention the loan amount you seek and the purpose of the finance.
Few tips if you are about to apply for a loan:
Tip 1. Use a loan eligibility calculator
A loan eligibility calculator tells you the amount you can receive based on income, net profit, existing debt, years in business, etc.
Tip 2. Use a loan EMI calculator
A loan EMI calculator helps you determine the EMIs based on the loan EMIs and repayment tenor.
You can use the business loan EMI calculator provided by NBFCs. The calculator is simple and easy to use.
Tip 3. Choose the tenor wisely
Business loans come with tenors ranging from 12 to 60 months. Tenors impact your EMIs and total payable interest.
For example, a short tenor lowers the total payable interest but increases your EMIs compared to a longer tenor. Using the loan EMI calculator will also help you here.
Fulfilling all the criteria mentioned above and abiding by the tips will help improve your odds to procure a business loan. Make sure to repay your loan EMIs on time to increase your CIBIL score and avail the best financial terms across your loans.
Recommended for you: Investment opportunities