Which Businesses are Eligible to Apply for Business Loan?

Which Businesses are Eligible to Apply for Business Loan?

While obtaining business finance is the best bet to start or expand a business, understanding its nitty-gritty in detail can help cut down the application time and benefit from quicker disbursement. Several types of business loans are today available for businesses – small and large. And while most types of business activities are covered under business financing, some types of organizations may not qualify for loans.

Let us understand the types of businesses and the eligibility criteria for business loans in details:

Businesses that can apply for Business Loan:

Registered Business: All types of registered businesses (whether private, public, or sole proprietorships) can apply for business loans. If your business is unregistered or not recognized by law, it will not qualify for business finance.

Businesses with Audited Accounts: If your company has audited accounts with a complete set of audited profit and loss statements and other documents in place, you can apply easily for a business loan.

Businesses with Good Credit Score: Regardless of their core business type, firms with a good credit score or CIBIL ranking will qualify for business loans. Banks and financial organizations often turn down businesses with a poor credit history.

Businesses with Strong Turnover: While this condition varies from lender to lender, firms with a substantial turnover (over 20 lakhs a month) stand a better chance to qualify for business loans. The better the turnover, the higher the loan amount that can be sanctioned.

Businesses with Positive Cash Flow: Businesses with negative cash flows over the years are often deemed unfit for loans. Organizations that show positive cash flows for at least two quarters or more stand a better chance in terms of business loan eligibility.

Eligibility for Business Loans:

To qualify for a business loan and to ensure a smooth financing process, applicants should meet the below-mentioned eligibility criteria:

Age Limit: Business Loans are tied to age in most circumstances. The applicant or the owner of the business should therefore be between 25-65 years of age at the time of applying for the loan.

Business Profitability: As mentioned earlier, businesses with positive cash flows stand a better chance to qualify for business loans. At the minimum, an organization should at least show profits for three consecutive financial years to apply for business finance.

Business Turnover: Businesses with a rising turnover are considered eligible for business loans. Similarly, businesses with duly filed ITR audited balance sheets, and a CIBIL score above 750 are stronger candidates for business finance.

In addition to the above, the applicant should have a good track record and should be a residing citizen of India. He should not have unsecured loans and pre-existing business loans in place at the time of applying. Businesses with a good debt-to-income ratio also stand a better chance in terms of business loan eligibility.

Keeping in mind the above pointers can help you smoothen the loan application process and qualify for a business loan without any hassles.

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