Factors Affecting Business Loan Eligibility
Last Updated : Aug. 31, 2020, 6:19 p.m.
Business Loans are very useful to increase the performance of a business. It helps in business expansion, purchasing the raw materials, buying heavy equipment, and in fulfilling other business needs. But you have to be eligible to take a business loan. If you fail to fulfil the eligibility criteria of a business loan then your application might get rejected. So, here you can see the factors affecting business loan eligibility criteria. You must go through all the factors and see whether you are eligible for a business loan or not. On the other hand, the lenders see the various criteria before they lend a business loan for business expansion.
How the Eligibility Criteria of a Business Loan are affected?
Here are some common reasons that might be responsible to fulfil the eligibility criteria of a business loan. You must have a look at all of them before you are applying for a business loan .
- Age of the Individual
- Turnover of the Business
- Documents Required
- Age of the Business
- Business Plan
- Repayment History
- Cash Flow
Age of the Individual
Most of the lending institutions have an age eligibility criteria of a minimum of 21 years. But there are some financial institutions that need a minimum age of 25 years to lend the business loan. So, your current age at the time of taking a loan is an important factor affecting the criteria. On the other hand, there is a criterion for the maximum age that is 60 years. You cannot take a loan if you have acquired the age of 60 years. Therefore, your age might affect the eligibility and you can’t take a business loan.
Turnover of the Business
There are some banking and non-banking financial institutions that have a minimum turnover eligibility criterion. The amount of your business loan is decided on the yearly income of the business. If you are willing to take a business loan for the long term and high loan amount then you must have a high turnover. The turnover will be responsible for the loan amount and thus it will affect your eligibility to take the loan.
Document Required
The lenders ask for the identity proof, business vintage proof, income proof, and the address proof. So, you have to submit all the documents related to it to the back. Your business loan application might get rejected if you are unable to show the documents related to the above proofs. So, the documents might also affect your eligibility to borrow a business loan from the bank. But there are some lending institutions that give Business Loan without ITR .
Age of the Business
If you are unable to prove your business vintage period then there are high chances of loan application rejection. There is a criterion for the age of the business. Some banks ask for a long vintage period and you can prove it through your ITR. On the other hand, there are some NBFCs that need a business vintage period of just 1 year. So, the age of the business in one of the factors affecting business loan eligibility.
Business Plan
Your eligibility to take the business loan might get affected if you don’t show the purpose for taking the loan. The bank also checks the purpose for which you are borrowing the loan. It can also ask you about the plan to repay the loan. The eligibility criterion for the loan is also affected by the amount of loan you are willing to borrow. If the loan amount is high then the bank needs a high turnover and a long vintage period.
Repayment History
Every bank checks the repayment history of the individual who is borrowing the loan. It is checked through the Cibil Score. If you are having a negative Cibil Score then the chances for the business loan rejection is high. The eligibility for taking the loan might be strict if you are having a bad credit history or repayment history.
Cash Flow
The cash flow into the business activities plays an important role in determining eligibility. The eligibility criteria will be lenient if you have a healthy cash flow in the company. You must manage your cash flow in an effective manner so that the liquidity remains in the business.
Conclusion
You have seen all the factors affecting business loan eligibility. Make sure that you comply with all the factor and then apply for the business loan. If you fulfill all the eligibility criteria then your chances of getting a business loan are very high. Make sure you go through all the conditions of the lending institution and fulfil them before you submit the business loan application to the bank.