What are the Factors Affecting Your Business Loan Eligibility?

General

If you are a business owner, you will need money at a certain point to increase operational capacity or to sustain in terms of an emergency. Ideally, the revenue generated by your business should provide the adequate working capital required for your day-to-day operations. However, this revenue may be insufficient to meet your business needs during low-business periods. In such circumstances, a business loan can be an excellent source of external funding.

When applying for a business loan, lenders look at certain factors while measuring your creditworthiness. Any bank or lending institution’s business loan eligibility parameters determine whether you are fit to apply and receive a business loan. Business loan criteria differ from a personal loan, and if one ticks all the terms that we will discuss below, you’re highly likely to receive a business loan approval.

However, your business loan eligibility is determined and affected by multiple factors. If these eligibility factors are managed well, your chances of receiving a business loan approval increases. Here are the factors discussed in detail:

Credit History

For lenders, good history of credit is always a high priority for loan approval. If you have a low credit score on an individual or business level, you may have difficulty getting loan approval. Lenders want to ensure their repayment; that is why the credit score is one of the first things they look at while scanning your business loan application.

Lenders prefer individuals or businesses with a credit score of more than 725. Such a credit score indicates good credit history, strong money management skills, and wise spending habits. A credit score of less than 700 can pose you as a high-risk borrower for lenders.

Cash Flow

A business with low cash flow indicates that you have to take care of your business expenses before your credits. Lenders go through your personal and business account’s bank statements to get a clear idea of your income and cash flow. Therefore, before applying for a business loan, set goals, analyse your business cash flow, and make a proper payment policy to improve your cash flow.

Repayment Capacity

Lenders want to ensure complete and timely repayment of their loan amount, and whether you can satisfy this requirement is defined as your repayment capacity. When you apply for a business loan, you authorise the lender to check your bank statement, credit history, and ITR to get an idea of your capacity to repay.

Lenders base the decision to approve your loan based on the repayment of your existing or previous loans. The transactions in your credit report also indicate credits and debits you carry at present. After verifying all these, the lenders calculate your credit to debt ratio and decide to approve or deny your business loan application.

Eligibility

You need to meet the lender’s eligibility conditions to apply for a business loan. You need to find a lender with the easiest criteria possible. If you are applying for a business loan with Clix Capital, you need to meet the following requirements:

    • Minimum 21 years of age at the time of loan application
    • Maximum 65 years of age at the time of loan term ends
    • Any of the following types of business
    • Proprietorship
    • Private limited company
    • A partnership firm in services, trading, or manufacturing
    • Closely-held non-listed company
    • Minimum turnover of ₹ one crore
    • Minimum 3 years of business history in the current work area
    • The majority of business routed via the banking system, reporting audited financial statements for the last two years, or capturing turnover in the last year through GST returns

Documents

Different lenders have different documentation requirements. For a business loan from Clix Capital, here is a list of documents we would need to check:

    • Completed loan application form
    • Passport size photograph
    • Identity Proof, which may be your Aadhaar Card, PAN Card, or government ID if you are a government employee
    • Address Proof, which can be your Aadhaar Card, passport, driving license, voter ID card, or utility bills for the last two months
    • Proof of Ownership
    • Financial Documents, which include the following:
    • PAN Card for a firm, company, or individual
    • GSTIN
    • 6-months bank statement
    • Copy of the most recent Income Tax Return form
    • Computation of income audited balance sheet, and profit & loss account for the last two years
    • Proof of continuity of the business of 3 years, which can be your sales tax certificate, establishment, ITR, or trade license

Age Of Business

Don’t be shocked when your loan application gets rejected if you are just starting out. Most lenders prefer established companies with at least 2 to 3 years of experience in the industry. Lenders need assurance that you can repay your loan in time. That’s why they give so much importance to credit history. They also need confidence that you can run your business profitably. Without experience, lenders may reject your loan application.

Income To Debt Ratio

Many lenders look at your income to debt ratio to determine your creditworthiness. Divide your monthly expenses by your monthly business income to calculate this ratio. Your expenses should not be more than 30-40% of your income. The lower your ratio is, the better chances you will have for loan approval. Businesses with a high percentage have a higher risk of defaulting on their payments, which works as a red flag for lenders to lend money. It’s essential to pay off your debts first, lower this ratio, and then apply for a business loan. Apart from this, consider improving your business’s credit score by paying your bills on time and maintaining a good credit history. Clear off your loans and improve your cash flow to have a solid financial statement.

Working Capital

Your business capital includes your liabilities and assets, such as specialised equipment, machinery, products, inventory, infrastructure, buildings, etc. Lenders look at your assets and capital to establish your creditworthiness.

Conditions

While approving your business loan, lenders also look at the following conditions:

    • Loan amount
    • Applicable interest rate
    • Fees and charges
    • Repayment schedule
    • Loan term

    Benefits of Taking a Business Loan from Clix Capital

    When you take an unsecured business loan from Clix Capital, you get the following benefits and much more:

      • An easy application process that you can complete within a few clicks. Mention a few essential details, and you may get your loan approval quickly.
      • Sufficient loan amount of INR 5 to 50 lakhs, which is adequate to help you build your business.
      • Clix Capital offers a flexible repayment term of 12 to 36 months that you can choose as per your repayment capacity. Use the business loan EMI calculator to determine a loan term with easily affordable EMIs.
      • You may avail the business loan without any collateral, security, or guarantor.

      So, if you are a business holder and looking to develop or enhance your working capital, complete the business loan application online process with Clix Capital, and have your ends meet. You may use your loan amount not only to develop working capital but also to enlarge or nurture your business, purchase inventory, invest in labour or advertising, or buy new equipment or machinery.

      For any queries, find us on Facebook, Instagram, LinkedIn, Twitter, or WhatsApp. You can also reach out to us at hello@clix.capital or call us at 1800 200 9898.

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