A business loan is the guardian of the business owner facing a paucity of funds. It helps him with easing the cash cycle providing funds for day-to-day activities. In this blog, we shall discuss how you can qualify for a business loan in 3 easy steps.
A business loan is the credit facility extended by the finance lenders to business owners to help them with finances. The funds availed under a business loan must be used for business purpose only.
A loan for a business is of different types, majorly secured and unsecured business loan. A secured loan is offered with collateral. The borrower has to hypothecate collateral to avail a secured or collateral business loan. Whereas an unsecured business loan is offered without collateral entirely on the basis of the creditworthiness of the borrower. An unsecured business loan is also called the collateral-free business loan.
Also, the business funding also differs on the basis of the purpose for which they are availed. For instance, a machinery loan is availed to buy new machinery or for the upgradation of the existing machinery. A working capital loan or capital loan can also be availed to increase working capital or capital loan.
Also, a flexi loan is a new age loan which is specially designed to meet the urgent requirements of the business owner.
Now let’s discuss how to qualify for a business loan in 3 easy steps:
Build Good CIBIL Score
Also Read: MSME Loan in 59 Minutes: How To Avail It?
A good CIBIL score is required to avail a business loan. A good CIBIL score signifies your creditworthiness. So, a good credit score is important to avail a business loan. There are various factors that affect the CIBIL score, such as:
- Bank Balance: A good balance affects CIBIL score positively.
- Paying off Debts: Paying all your debts on time signifies your responsible behaviors. So, if you running on any loans, ensure that you repay them on time. At least 5 days before the due date. A timely repayment report will be required while availing a business loan.
- Credit Report: Keep a look at your credit report and immediately get corrections if there is any wrong information entered.
Additionally, a loan for business can be availed at a lower interest rate if your CIBIL score is high since lender does not want to risk their money. So, the first step towards qualifying for a loan for business it to build a good credit score. The CIBIL score limit is 300-900 out of which an ideal CIBIL score is said to be 750 at least.
Know the Lender’s Eligibility Criteria
As said earlier, no lender would want to risk their money. So, for that matter, a lender lays out some eligibility criteria. And a lender approves the loan application only if the borrower fulfills the eligibility criteria.
Said that every lender has different eligibility criteria. But the following is the business loan eligibility criteria that most of the lenders lay:
- Minimum Turnover of INR 10 Lacs in the last 12 months.
- Last year ITR of more than INR 2.5 Lacs.
- Either house or business premises should be owned.
- Business place should be separate from the residence.
- Business vintage (operations) for at least 2 years.
So, the next step is to know the lender’s eligibility criteria. You can visit the individual lender’s website and check their eligibility criteria. It is, for obvious, recommended that you apply for a business loan only after you fulfill the eligibility criteria of the lender.
Documentation is an important part of the loan for the business. No lender would ever lend you their money without these. However, to the borrower’s problem, they think that availing a business for business is a task including a lot of hassle majorly because of huge piles of documents required.
To their savior, many lenders these days offer a business loan at minimal documentation. And above that, they offer online service – you can upload the PDF files of the documents online. So, this makes the entire business loan availing process a hassle-free task for them.
Said this, the last step for you to qualify for a loan for a business is to arrange for all the required business loan documents.
If you all the things in place, nobody can deny a loan for the business. And in the end, it is your choice to choose the lender – one who offers loan at the lowest interest rate and offers a number of other services as well. And now that you know the three steps to qualify for a loan for business, you can make a good choice.