Keeping track of financial requirements is a critical aspect of running a successful business. But what happens when you find yourself strapped for cash? In such a case, business loans can come to your financial aid. Whether you need funds to meet day-to-day expenses or set up a new factory, business credit is the way to go and get things done. That said, you must be eligible to get the required funding without a hassle.
Here are 5 factors that affect your business loan eligibility.
1. Type of business
Some businesses are riskier than others, and hence, getting loan approval for them is difficult.
If your business falls under the category of risky business, work on increasing its reputation. Also, make sure your business plans are clear and concise. Having a clear vision of the execution process can help establish trust with lenders and boost your chances of loan approval.
Additional Read:- Types of Business Loan Agreements You Should Know
2. The Age of Business
When screening your application, lenders will consider your business continuity or age. Older businesses are generally more financially secure. So lenders are more inclined to trust businesses that have been around for two or three years as compared to startups.
If your business has been in operation for more than a year, most lenders will ask for financial statements to check the company’s profit potential. A positive figure means better repayment capacity. In such a case, many lenders offer competitive business loan interest rates, especially for profit-making businesses. However, in the case of early-stage startups, the focus is on growth strategy instead of income.
4. Credit score
Your credit score is probably the first and most significant factor your lender will look at. Since a high credit score is a reflection of good credit history, such applicants are favoured by the lenders. They tend to get faster approvals than people or businesses with lower credit scores.
In the case of an older business, the company’s credit history is considered. But for a new business, the credit scores of the founders are taken into account. So, if you’re planning to start a business, make sure to check and improve your credit score before applying.
Many financial institutions approve loans quickly if applicants provide some form of collateral. If required, you can pledge fixed assets, stocks of the company, equipment, and others as collateral to the lender. Alternatively, you can choose a lender offering collateral-free loans. Tata Capital, for example, provides collateral-free business finance at competitive business loan interest rates.
Additional Read:- When You Need to Opt for Business Loan
To sum up
If you’re looking for funds to start a business or scale one, keep a close watch on your credit rating and the financial performance of your business. With little effort, you can secure business finance and give a boost or head start to your entrepreneurial journey.
If you’re looking for a financing option for your business, turn to Tata Capital. We have various options and exciting interest rates. Visit our website now to apply. Use business loan EMI calculator to find out your EMI amount instantly.