Starting a new business or wanting to expand an existing one? If yes, then you have definitely thought of availing a business loan. But, do you know the various business loan eligibility criteria set by various financial or non-banking financial institutions (NBFC)? It is absolutely critical that you know these criteria as all banks or NBFCs will review these factors before signing off on your loan. It is essentially a methodology by which, banks are able to secure themselves against the associated risks as well as ensure less burden on you as a borrower. The criteria, be it for secured or unsecured loan differs for every lender, but the general rules are the same for everyone.
In this article, we have listed down the various business loan eligibility criteria to help you achieve your business goals and objectives.
What are the factors that affect business loan eligibility?
Several factors affect the eligibility of a business loan. Some are direct in nature which are more obvious, and rest are indirect and beneath the surface. Knowing what can help your eligibility improve and putting them into practise benefits the borrower in the long run. Some major factors that are responsible for loan rejection are the following:
Every lender looks at the stability of the business. They check the past accounts and profitability. If the business has been steadily growing and generating revenue, the lenders easily sanction the loan. But if the income is instable and there too many lows and no profit margin then the chances of business getting a loan becomes thin.
One can never emphasize enough on how important a good credit score is. A good credit score automatically makes you eligible for a higher amount of loan with a low interest. Defaulting repayment, irregular payment, fraudulent activities etc. take a massive hit on your credit score. Thereby, making it difficult for you to get any kind of loan for the business.
Having a criminal background almost negates the chances of getting a loan. If the applicant was involved in some criminal activity, then the lender will heavily scrutinize the application. The lenders generally refrain from giving loans to people who they think can default the loan in the future.
How to improve loan eligibility?
A few simple practices like, paying the EMI on time, makes a lot of difference. Just inculcating basic changes to your transactions with the lender will always keep you eligible for any loan.
- Avoid missing credit card bill payment, outstanding bills or EMI defaults. Failing to pay any one of these affects your credit score.
- Late payments too, can affect the credit score. Late payments also have the same effect on the credit score as no payment.
- Applying for a business loan with multiple lenders and getting rejected simultaneously affects the score too. If your loan has been rejected by one lender, wait for some time and then check with other lenders.
- Go for a lender who is lenient and sanctions loan with minimal documentation.
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