In the vibrant world of business, securing the right financing is very important for growth and sustainability. If you're a business owner, no matter what kind of business you have—like a shop, a company, a factory, or any other type—you might find yourself needing a business loan. This loan can help you with your everyday business needs, expenses, and keep your cash flow running smoothly.
Do you know? Micro, Small, and Medium Enterprises (MSMEs) are a significant segment, contributing to over 40% of the total business loan disbursements.
But, what does it take to be eligible for one? This blog will walk you through the eligibility criteria, providing you with a complete understanding to help you make informed decisions. Make sure you read the blog till the end for a great understanding!
A business loan is money given to a business to help it with its money needs. These loans help businesses with money matters. You can get them from banks, financial companies, or government programs.
You can use this money for different things, like:
Working capital requirements
Expansion of business operations
Purchasing machinery or equipment
Managing operational costs
While different lenders may have varying requirements, here are the common eligibility criteria for business loans in India:
| Criteria | Requirements |
|---|---|
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Credit Score
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A good personal and business credit score is usually required. Lenders use this to assess your creditworthiness and risk. 750 or above is a good credit score.
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Business Revenue
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Lenders often want to see a minimum level of revenue to ensure your business can afford the loan payments. This may vary depending on the loan amount and type. Preferred turnover starting from 100,000 to 250+ crore.
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Business Age
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Some lenders prefer businesses that have been operating for a certain period, typically at least 2-3 years. Startups may find it harder to qualify for traditional business loans.
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Income of person
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You should minimum 1,50,000 p.a.
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Collateral
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Depending on the type of loan, lenders may require collateral such as property, equipment, or inventory to secure the loan.
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Legal Documentation
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You'll likely need to provide legal documents such as business licenses, registrations, and any relevant contracts or agreements.
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Business Plan
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A good business plan shows that your business idea makes sense and has a bright future. It's like a roadmap that helps you and others understand what you want to do and how you'll do it. This should include Executive Summary, Business Description, Organization and Management, Products or Services, Funding Request, Financial Projections etc.
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Loan Purpose
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It's really important to clearly say why you need the loan and what you'll use it for. This helps the lender understand your needs and decide if they can give you the loan.
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Interesting Fact: Did you know that India’s MSME sector contributes around 30% to the GDP and employs over 110 million people?
It's important to know the differences between business loans and personal loans so you can decide wisely. Here's a simple comparison table:
| Feature | Business Loan | Personal Loan |
|---|---|---|
| Purpose | For business-related expenses | Can be used for any personal or business expense |
| Loan Amount | Higher, based on business requirements | Generally lower compared to business loans |
| Interest Rates | Usually lower due to secured nature but ranges from 10.50% to 24% | Higher due to unsecured nature |
| Repayment Tenure | Tenure can go up to 5 years | Typically, up to 7 years |
| Eligibility Criteria | Based on business performance and credit score | Based on individual’s credit score and income |
| Collateral | Often required (secured loans) | Not required (unsecured loans) |
Here’s a step-by-step guide to applying for a business loan:
Evaluate Your Needs: Determine the exact amount you need and how you plan to use it.
Check Eligibility: Review the criteria mentioned above to and ensure that you meet the requirements.
Gather Documentation: Prepare necessary documents such as financial statements, business plan, tax returns, and identity proof, address proof etc.
Choose the Right Lender: Research and compare lenders to find the best interest rates and terms.
Apply: Fill out the application form, either online or at a nearby branch.
Credit Evaluation: The lender will assess your repayment ability by understanding the factors such as CIBIL Score, Business Stability, Financial health and others
Wait for Approval: The lender will review your application and documents. This process can take a few days to complete.
Loan Sanction/ Disbursement: Once approved, the loan amount will be disbursed to your account.
Repayment: Repay the loan as per the agreed EMI and other conditions.
Important Note: Please Ensure that you have a clear repayment plan to avoid any financial stress or pressure on your business.
Securing a business loan can be a great step for your business, providing the necessary capital to expand operations, manage cash flow, or invest in new opportunities. Understanding the eligibility criteria is crucial to streamline the application process and increase the chances of approval.
In summary, key factors such as business annual turnover, profitability, credit score, and collateral significantly influence your eligibility. Additionally, having a structured business plan can make a strong reason for lenders.
Remember: It’s essential to conduct thorough research to identify the best loan options available in the market. Comparing different lenders, their interest rates, and terms can help you find the most suitable financing solution for your business needs.
We EazyBankLoan understand the process of procuring a loan can be stressful. That is why we take care of your business loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.
Compare and Apply the Business Loan Here
Need help? Reach out at support@eazybankloan.com
| Topic | Summary |
|---|---|
| Understanding Business Loans | Business loans provide financial assistance for various business needs. They can be obtained from banks, financial institutions, or government programs. |
| Key Eligibility Criteria | Criteria for business loan eligibility include credit score, business revenue, business age, personal income, collateral, legal documentation, business plan, and loan purpose. |
| Comparing Business Loans | Business loans differ from personal loans in terms of purpose, loan amount, interest rates, repayment tenure, eligibility criteria, and collateral requirements. |
| The Application Process | Applying for a business loan involves evaluating needs, checking eligibility, gathering documentation, choosing a lender, applying, undergoing credit evaluation, awaiting approval, loan disbursement, and repayment. |
| Conclusion | Securing a business loan can fuel business growth and success. Understanding eligibility criteria and conducting thorough research are essential for obtaining the right financing solution. |
Yes, many banks and financial institutions offer specialized loans for startups, though the eligibility criteria might be more strict.
While a low credit score can make it difficult, it’s not impossible. Some lenders consider other factors like business performance, collateral, and cash flow.
Yes, schemes like MUDRA loans, SIDBI, and CGTMSE offer financial support to small and medium enterprises.
Collateral is an asset pledged to the lender until the loan is repaid. It can be real estate, equipment, or inventory. If the loan defaults, the lender can seize the collateral.
Interest rates typically range from 10.50% to 24% per annum, depending on the lender and the borrower’s profile.
The maximum loan amount depends on factors like the lender's policies, your business's financial health, creditworthiness, and the purpose of the loan.
Loan tenure typically ranges from 6 months to 5 years, and it can often be customized based on your business's needs and financial capabilities.
Commonly required documents such as business registration documents, financial statements, tax returns, bank statements, ID proofs, address proofs, and business plans.
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