When it comes to business financing, several funding options come to the fore. Financial institutions provide these loans and advances in varying capacities to fulfil the varied funding needs of enterprises. For instance, you can avail a term loan for business financing, a line of credit for meeting recurring expenses, or secure funds through invoice discounting. Similarly, lenders provide several secured business loan options as well. While the terms of these loans vary significantly, some aspects related to their availability remain common. So, when availing a business loan in India, it would be best to keep a few crucial aspects in mind before applying for your business loan.
We bring you a detailed guide on all the requirements you would need to meet when availing a business financing option in the county. Let’s check them out one by one.
Common Eligibility Criteria
Several financial institutions provide business loans in India with varying terms and conditions along with different features. Depending on the lender extending funding, the basic eligibility requirements for business loans vary too. Depending on your overall borrowing profile, you may be asked to meet additional requirements as well. Make sure to check if you fulfil all eligibility criteria or not before applying for a business loan in the country.
Some of the standard eligibility criteria that you need to meet to avail a business loan here include the following.
- Credit score of not less than 700
- Age between 25 and 70 years
- Business vintage of not less than 3 years
- Residential stability of at least 1 year in India
Depending on these, and some other aspects, lenders assess your profile for approving a suitable loan amount. You may be asked to meet additional requirements based on your personal and business profile. Once you have selected your lender to borrow the loan from, it is best to check if you meet all the basic requirements or not.
Zero Default in Previous Repayments
As a business’s previous repayments are close indicators of its financial health, lenders make sure to check if they have made necessary repayments in time and in full or not. Thus, one of the crucial requirements for availing a business loan is that you must have had zero repayment failures for any loans or advances availed in the past.
Since such records are created over the time, it is best to remain proactive and keep all existing repayment liabilities fulfilled to improve your prospects of availing a business loan easily in the country.
Updated and Audited Financial Statements
The financial statements of a business serve as the first face of the enterprise, allowing lending institutions to gauge the stability of the firm. They thus require applying businesses to keep all financial statements of the enterprise updated to the current financial year, as well as audited by a practising Chartered Accountant to ensure the authenticity of the documents.
Some of the most important financial statements that lenders seek to assess include the Balance Sheet, the Profit and Loss Statement, and the Income and Expenditure Statement. Once you have updated these documents, make sure to get them audited before presenting to your lender.
Values like assets, liabilities, profit, and reserves reflected in these statements also allow the lender to derive several essential ratios for the assessment of the business’s financial health in the long run.
When applying for a business loan in India, you would also need to provide additional documents to confirm the business’s eligibility for availing the required funds.
Income Tax Returns Filed for Previous Years
Another crucial requirement you need to meet, whether availing a small business loan or a high-value one, would be the Income Tax Return or ITR filed for the required number of previous years. Documents like ITR allow lenders to take a peek into the income and profits of the business over the years. Accordingly, they would gauge the repayment capacity of the business for determining the suitable loan amount which keeps the EMIs affordable.
To avail a business loan in India, you also need to provide additional income documents such as bank account statements for overall financial visibility. Make sure to work on your credit score at least 6 months prior to applying for the advance to further improve your chances of quick approval.