If you are an SMB (small and midsize business) owner, you will always need a considerable amount of money to keep things smooth and functioning, especially during a time like this. If you have had an unwelcoming experience with banks, try a trusted non-bank financial institution (NBFC) for that matter.
As you can avail up to Rs.40 lakh without any collateral, it is an excellent opportunity to grow exponentially by expanding your business’s infrastructure, introducing new products or services, or investing more on marketing campaigns. Click here to calculate EMI.
If you are applying for a loan post lockdown, here is how to be eligible and the crucial things you need to consider. Before that, let us look at the essential eligibility criteria to get a Business loan.
What Are the Criteria for Business Loan Approval?
The first step while considering “how to be eligible for a loan?” is checking whether you fit the needed criteria for a loan approval. Here are some of the general loan eligibility criteria.
Self-employed individuals, proprietors, partnership firms, and private Ltd. Co involved in the business of manufacturing, trading, or services are eligible for business loans.
- The applicant should be 21 years of age or older while applying.
- The applicant should be no more aged than 65 years at the time of loan maturity.
- Your business should be making profits for the past two years.
- Your business vintage must be at least three years, and you must have at least five years of total business experience.
How to get loan Approved?
In short, qualifying for a business loan means successfully demonstrating your repayment capability. Here are some ways you could showcase your loan capacity and give more confidence to the financial lender.
- Maintain a healthy credit score
The personal credit score of yours and the partners of your business can significantly affect your eligibility for a loan. Having a healthy CIBIL score means you are financially disciplined and are least likely to default on repayment.
It also reflects your capability to make the best financial decisions. Although the minimum personal credit score required to get a business loan changes with respect to your lender, having a CIBIL score above 700 will enhance your credibility. Click here to know more.
- Demonstrate Adequate Cash Flow
While deciding your eligibility, the financial lender will investigate your business’s cash flow and see if it is adequate. They will most probably investigate your previous tax returns and existing debts to know whether you will be able to pay the monthly instalments without defaulting. Hence, make sure you demonstrate adequate cash flow the lender will find convincing.
- Keep your Documents Ready
Before applying, make sure you gather all the relevant documents. This will streamline the loan process and make things easier for you and the lender. Depending on the lender you choose, you will have to submit,
- Identity proof
- PAN card
- Address proof
- Proof of business
- Business and personal bank statements (last six months)
- Business and personal tax return records
- Business’s financial statements
- Business’s legal documents such as commercial lease, and franchise agreement.
- Be Insured
Your loan eligibility is directly related to the risks associated with you and your business. The less risky, the better. One of the easiest methods to reduce your risk is by having a personal or business insurance that can pay off the loan if something happens to you. If you are adequately insured, your chances of getting a loan will increase.
What to Do If My Loan Application Is Rejected?
a. Enquire the Reason for Rejection
Once your loan application is rejected, the chances are bleak that your application will be considered again within a short time by the same lender. However, they will be more than happy to share with you the reasons for rejection. Learn from those reasons and make sure you do not repeat them the next time you apply for a loan.
b. Check Your Credit Reports
Your credit reports can be a significant factor for your business loan rejection. Make sure you check whether there are any discrepancies and if so, rectify them before applying again.
c. Improve Your Business’s Financial Standing
Your business’s cash flow, annual revenue, business savings, assets, and debts are critical factors that determine whether you are eligible for loan. Lenders will scrutinise these factors, and if they are not impressive, your loan eligibility will suffer. Next time you apply for a loan, try improving these determinants.
d. Be Cautious the Next Time
The number of times your loan application is rejected will negatively affect your eligibility. Next time you apply for a business loan, make sure you fully meet the lender’s eligibility requirements, and have a sounding credit score to go with.
Is It Better to Apply Online or in-Person?
Applying for a loan online can be extremely convenient, especially during a time like this. It will also speed up the loan verification and approval process. Some lenders are also known to provide additional benefits if you apply for loans at home.
An online loan application makes it easier to compare loan rates from multiple lenders, and you can also enjoy the advantage of pre-approved loans. Wondering how to check loan eligibility? There are plenty of online loan eligibility calculators available for that.
However, it would be unfair if we completely ignore the advantages of applying in person. By communicating directly with a loan officer, you will have a better opportunity to explain your requirements and demonstrating your loan capacity.
Is There a Best Time to Apply for a Loan?
The time of applying has minimal effect on whether your application will be approved or not. The right time is when your business needs the loan the most.
Try applying before your business’s busy season and invest the amount in machinery or creating new products or services. You can also rely on small amount loans to keep your business smooth during the slow season.
When applying for business loans, try looking at how the credit decision can complement your business’s overall financial picture and always choose a lender that offers you the best terms. Also, make sure you have a fool-proof business plan that a financial institution will find flawless and profitable.
Even if you are rejected, do not be discouraged. Instead, work on your loan eligibility. The key is to maintain healthy financial habits, be regular with bill payments, and apply only when you really need one.