When you need to apply for a Business Loan, it’s best to prepare ahead of time. Many business owners apply for a loan but get rejected as they do not meet Business Loan eligibility criteria.
Entrepreneurs need to ensure that the documents and information required to qualify for a Business Loan are gathered before initiating the application process and be aware of the loan provider’s specific guidelines before applying for a loan.
In this article, we will discuss the key things you need to ensure that you qualify for an online Business Loan.
What are the qualifications for a Business Loan?
Business Loan requirements can vary depending on the type of loan and lending institution or the NBFC. For example, loans offered by traditional lending institutions have strict standards, whereas NBFCs provide more flexibility. However, all loan providers typically consider credit scores, business history, financial status, debt, and a few more factors for a Business Loan.
1. Credit Rating
Your past financial performance predicts future outcomes. Personal and business credit scores are used to verify the credibility of the applicants. One of the first requirements for a Business Loan is that both the company and the owner should have excellent credit scores.
Know that the lower the credit score, the higher the perceived risk. A CMR score of upto 6 and CIBIL score of 700 & above is required for businesses to qualify for Business Loans at Clix Capital.
You can raise your credit score by paying all your credit instrument bills on time and maintaining a low personal debt-to-credit ratio. In addition, businesses can improve their credit scores by keeping their data up to date and strengthening their relationships with the lending institution before they apply for a Business Loan.
2. Annual Income
One of the crucial Business Loan prerequisites for a loan provider is a clear picture of your company’s trends pertaining to sales and cash flow.
Before applying for an online Business Loan, ensure that you have audited financial statements for the last two years. NBFCs look at specific metrics such as the current ratio, the sum of your assets, and current liabilities.
Some lending institutions may also request copies of your account transactions to confirm the cash flows reflected on your financial statements. Remember that the qualifications for a Business Loan can be based on both cash flow and revenue. Cash flow financing is ideal for organisations that generate significant sales but don’t have much collateral to offer. Revenue based financing is ideal for companies with a lot of physical assets, such as equipment, that can be used as collateral for a loan.
3. Business Vintage
Businesses that have been in operation for a more extended period may obtain a loan more quickly because they can demonstrate a track record of success. Many NBFCs like Clix Capital require your company to be in operation for at least three years to be eligible for a Business Loan.
Still, before you apply for Business Loan, you should be ready with your business’ financial statements and a repayment plan. You should be able to provide documentation supporting your company’s establishments and other related documents if required.
Alternatively, there are other options for small business owners. For example, small business owners who do not qualify for Business Loans can always go for a Personal Loan which they can use for business purposes. Clix Capital offers instant Personal Loans online with minimum documentation and easy repayment terms within minutes.
4. Collateral Security
Every lending institution wants to reduce its risk while providing a Business Loan. One way they do this is by obtaining collateral, which secures the loan if your company fails to repay.
One of the additional requirements for a secured online Business Loanis that the company’s owner provides a personal guarantee or pledges additional collateral such as business or private real estate, business machinery or other financial resources. This is not needed in case of unsecured Business loans.
5. Outstanding Debt
Another factor that loan providers consider is your company’s current debt. Therefore, your creditworthiness is affected by your income-to-debt ratio.
If your company already has large, outstanding loans, there’s a chance your income won’t be enough to cover all your payments when you get a new loan. This raises the risk for lending institutions.
Most of the time, your debt-to-income ratio should be less than 50%. An ideal debt-to-income ratio is considered to be less than 36%. Lending institutions may require a balance sheet that details your company’s assets, liabilities, and equity for verification purposes.
If the NBFC wants a personal guarantee for the loan from one of the business owners, it will also consider the individual guarantor’s outstanding debt and financial condition.
Most Business Loan applications include credit scores, annual revenue, financial statements, and at times – collateral. However, depending on the loan type and needs, you might need numerous other supporting documents to qualify for an online Business Loan.
- Address proof
- Identity proof
- Financial documents
- Proof of ownership
- Current additional financial obligations
Make sure to organise the necessary documents beforehand to avoid last-minute hassles.
Seeking finance is a standard move for small businesses when they’re growing rapidly. The funding provided by instant Business Loans online in India can be beneficial and necessary to your business’ continued success. However, it’s important to understand the requirements before applying for a Business Loan. You can apply for a Business Loan without problems with the information provided in this article. Choose to apply for a Business Loan from Clix Capital to get easily accessible loans with minimum documentation and quicker approvals online.