Things a lender considers before approving your business loan

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Whether you want to launch a store, buy machinery, or hire more employees, the financial requirements of your business can be of several types. Regardless of your initial funding, you might need to apply for business loan at some point or the other.

The following listed points are the basic business loan eligibility criteria:

  • The applicant must be between 25-65 years of age.
  • The applicant must have a business that has been profitable for three consecutive years.
  • The business of the applicant needs to show an upward trend.
  • The balance sheet of the company must be audited by a registered Chartered Accountant.

The following documents are also required to be able to apply for a business loan:

  • A duly-filled application form
  • Company’s bank statements for the last six months
  • Income Tax Returns for the last two years
  • Balance sheet and Profit & Loss statements for the last two years
  • KYC documents of the company that includes PAN Card, the partnership deed, Registration of Incorporation, Memorandum and Articles of Association
  • KYC documents of the business owners
  • A report detailing how the business loan will be used

Some of the common factors that lenders consider while approving a business loan are:

Credit History

Lenders generally review the credit history of the business while granting a business loan. Therefore, it is a good idea to obtain a credit report of your business before applying for credit. If you find any inaccuracies in the report, make sure you correct them immediately.

Loan repayment capacity

Banks/NBFCs want to be assured that the borrower will be able to repay the loan amount. The company’s debt-to-income ratio is usually analyzed as well as the amount of its free cash flow. Such calculations provide the lenders a cushion in case the business does not make any money.

Business owner’s capital

Lenders tend to feel more comfortable when the owner of the business has a good chunk of money invested in the business. When owners have enough personal capital in the business, it ensures that they would push harder to make the business work.

Overall economic conditions

Apart from analyzing the borrower, lenders also check the overall health of the economy. They consider factors well beyond the control of the borrower that might have an impact on the performance of the company.

If you are looking for an instant business loan, reach out to Tata Capital for faster approval, attractive interest rates, and easy repayment options.

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