How Is Business Loan Eligibility Calculated?

Nowadays, a lender will give a business loan without requiring any collateral. It is entirely up to the lender to decide how much risk they are willing to take. It is entirely up to the lender to decide whether to lend to an existing business or a completely new one. They determine who to lend to and how much credit risk may be absorbed.

A business loan is available to any Indian resident who has a partnership or proprietorship firm, a limited or private limited company or is self-employed. Before approving company loans, the lender analyses a range of factors. The primary consideration is your capacity to repay. The precise requirements differ for each bank. To qualify for a business loan, you must be the following:

• Age: The borrower must meet the bank’s age standards, which vary. You should be between the ages of 21 and 60 at the end of the loan period.
• Income: A consistent and reliable source of income is one of the most crucial elements in determining whether a borrower may obtain a larger loan amount. Your company's annual revenue should be more than Rs. 20 lakhs, with an upward trend in revenue and profit over the previous two years. Your most recent two years' income tax returns should show a taxable income of more than Rs 2.5 lakhs per year.
• Stability of the business: Stability is a key factor considered for business financing. A more established firm is more likely to obtain lower interest rates than a new one. This is because various lenders in India prefer to lend to small enterprises with established track records in their sector. Thus, if you have been in the same business for years, the lending institution will view this as a favorable indicator. We will be there to offer you more favorable loan terms with good payback choices. In contrast, a startup or firm with less expertise would face higher financing rates.
• Outstanding debts: Borrowers with current debt are more likely to receive a reduced loan amount. A current loan affects the borrower’s ability to repay. Lenders, on the other hand, may not reduce the loan amount if the borrower’s repayment abilities and financial ability are sufficient to afford an extra loan.
• Creditworthiness: In the loan application procedure, the CIBIL score is crucial. Lenders review your CIBIL score and record it every time you apply for a loan. If the applicant’s credit score is poor, the lender may decide not to proceed with the application and will reject it at that time. If your credit score is good, you will automatically qualify for the maximum loan amount and will also qualify for lower interest rates on business loans. Late payments and defaults on loan or credit card EMIs can reduce your eligibility. Therefore, you should constantly strive to maintain a high CIBIL score (700 or above out of 900) to enhance your loan eligibility for a business loan.

How Do I Improve My Business Loan Eligibility?

• Product Compatibility

In comparison to financing, lenders have a robust structure and system for granting or rejecting loan sanctions based on a variety of criteria. Thus, before applying for a business loan, the borrower should familiarise himself or herself with the lender’s business loan criteria and apply for the most appropriate one.

• Cash Flow
  

Unlike banks, lenders lend money based on profit and favourable cash flow. They do not earn shares in the business and are only entitled to receive interest on the funds loaned. As a result, lenders would disregard the business's long-term profitability, which they predict and create in the future.. After the first setup stage, they will typically fund only profitable and cash-flow-positive ideas. As a result, as a borrower, you must demonstrate that your firm is successful and that your operations produce enough cash to satisfy all financial obligations.

• Contribution or Margin

To qualify for a loan, the borrower must have the contribution or margin and must invest it. Lenders do not lend 100% of the money necessary for equipment or working capital investments. As a result, the borrower must have sufficient cash to fulfill the margin requirements specified in the loan terms.

For instance, if a borrower wishes to acquire machinery for Rs. 15 lakh, the lender will grant a 20% margin equipment loan (assumed number). In this scenario, the lender would issue a loan of Rs. 12 lakhs, and the borrower would deposit Rs. 3 lakhs of his or her own cash to acquire the machinery. The margin requirements might range between 50% and 10%, depending on the type of loan and the borrower's requirements.

• Security

The majority of business loan programmes involve the creation of the main security using the cash provided by the lenders. If a business loan can help acquire machinery, the machinery can be as helpful as the main security. If a business loan’s purpose is working capital (i.e., raw materials or inventory), the principal security will be the raw materials, inventory, or receivables. In the event of a loan payment default, the lender would have the authority to hypothecate or sell the principal securities to recover losses.

• Reputation

While authorising business loans, lenders seek an unblemished track record of loan payback. Before authorising any loan facilities, they will review your bank statements for the last year and your CIBIL score. In the event of a bounced check, a poor CIBIL score, or repayment failures, the likelihood of receiving a bank loan is significantly reduced. Thus, loan applicants should monitor their CIBIL score regularly, especially if they are ready to apply for a business loan.

Types of Business Loans & Their Eligibility Criteria

Business loans are important to the success of every firm. It might be used to cover the early costs of establishing a new organization, to support the business expansion by purchasing additional resources and infrastructure, or to obtain the cash necessary to keep the company operating normally between payment cycles.

At present, business financing may seem puzzling. As a business owner, you may always find yourself curious about the best possible way to finance a specific business need, even more so in a competitive world like today. Entrepreneurs have a plethora of options based on their eligibility criteria for a business loan.

There are four primary forms of business loans that entrepreneurs in the MSME and SME marketplaces prefer. They are as follows:

• Term Loan

Whether you are an offline or online retailer, manufacturer, or seller looking to expand your business, look no further than our Flexi-Term loans. Be it for expanding inventory to meet demands during the festive season, expanding to a new online platform, or general business expansion, we are a one-stop solution for all your business funding needs.

We provide you with quick funding, flexible repayment tenures, and interest rates based on your eligibility and convenience.

• Line of Credit

If you are in a business with seasonal variations or need funds to meet your irregular funding requirements, a line of credit loan would suit you. Flexi-Line is a product designed for businesses like yours. We provide you with a credit facility based on your eligibility, which you can use as you see fit. And the charge is only for what you utilize

• Vendor Financing

You are a vendor or a supplier to large corporations or online platforms and have multiple invoices that require your partners to pay them back. You are, however, looking for liquidity to meet your obligations while your partners pay you back. Flexi-Invoice Financing solves this problem for you by giving you advanced funds against the invoices so that you can run your business as usual.

Based on your eligibility, we offer quick and easy loans of up to 90% of your invoice amount.

• Loan against POS

If you are a merchant primarily operating offline, have a card machine, and are accepting credit or debit card payments, and you are looking to expand your business by procuring new inventory or expanding into newer products for which you need funding, Flexi-Merchant Advance is your product for any loan amount.

We provide quick, affordable, and seamless loans based on your eligibility and your card swipe transactions.

What Is the Maximum Business Loan Amount You Are Eligible for?

Eligibility for the maximum business amount depends on various segments:

• Age of the Applicant
• The nature of the business, the applicant’s financial history, the source of revenue, and the applicant’s CIBIL score
• Revenue and vintage of the business
• capacity for repayment and creditworthiness of the applicant
• Stability or profitability of a business

FlexiLoans determines the maximum loan amount up to Rs 10 crore with flexible repayment options after checking the above business loan eligibility criteria. Our yearly interest rates, which begin at 12%, are quite competitive in India. FlexiLoans is a one-stop shop for unsecured small business loans.