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Tata Capital > Blog > Loan for Business > Know your Business Loan Eligibility at your Fingertips

Loan for Business

Know your Business Loan Eligibility at your Fingertips

Know your Business Loan Eligibility at your Fingertips

Securing the right business loan is a game-changer when starting a business or expanding an existing one. These unsecured loans allow you to finance business needs ranging from procuring new inventory to paying employee salaries.

However, the first step is to conduct a comprehensive business loan eligibility check before applying for a business loan.

To be eligible for a business loan, your business must meet specific criteria set by the lender. Here we provide you with a list to check eligibility for business loans.

Business loan eligibility check

Before a lender decides to approve your loan, they check your ability to repay it. They do this through a thorough business loan eligibility check. Understanding what factors are vital to your lender’s decision can help you boost your chances of securing a business loan.

#1 Age requirement

This criterion of business loan eligibility checks if you are of age to enter into a loan agreement and repay it in the future. There is an upper and lower limit set on the age requirement. At the time of your loan application, you should be at least 21 years old and below 65 years at the time of your last loan instalment.

To check eligibility for business loans with respect to this criterion, your lender would require you to submit a document as proof of age. This could be your Aadhar card, Voter ID, Birth Certificate, or PAN Card.

#2 Business profitability

The profitability of your business tells the lender if you generate enough revenue to support loan repayments. A business’s financial strength is an essential consideration for lenders when checking the business loan eligibility for a new business.

You will have to submit proof of income to prove that your business is profitable. This includes documents such as Income Tax Returns and Computation of Income, tax audit reports, profit-loss statements, and balance sheets. The documents submitted must pertain to the previous two fiscal years, and all documents must be verified, signed, and sealed by a registered chartered accountant.

#3 Business stability  

Next, to successfully clear a business loan eligibility check, you must be able to establish the stability of your business. Firstly, the longer a business has operated, the more stable lenders consider it to be, as this speaks to your business’s longevity and resilience.

Business stability is also a reflection of your business’s ability to withstand dynamic market conditions. Lenders may judge this through various financial ratios that convey the health of a business.

To determine if your business would qualify for an eligibility check, you can verify if your current ratio, debt to equity ratio etc are favourable. Lenders may also analyse efficiency ratios regarding turnover, inventory-to-asset ratios, and collection periods to check eligibility for business loans.

#4 Bank balance

Your bank balance is another indicator of your financial stability and business profitability that lenders use to conduct a business loan eligibility check. To determine if your bank balance makes you eligible for a business loan, verify if you’ve had a healthy bank balance for at least six months.

A healthy bank balance tells your lender that you can repay the loan and that your business has liquidity and a positive cash flow to support your operations.

To facilitate a business loan eligibility check, you must submit bank statements for the last six months as part of the application process.

#5 Credit score

Your credit score tells the lender if you are a trustworthy loan applicant. This crucial metric is a reflection of your creditworthiness and credit history. A higher credit score means a higher chance of securing a loan.

When it comes to a business loan, lenders evaluate both personal and business credit scores. A credit score above 650 boosts your loan eligibility. It also makes you eligible for higher loan amounts and more competitive interest rates.

#6 Business Plan

Lenders consider your business’s potential to achieve success as part of the business loan approval process. The best way to inform your lenders of your business’s credibility is through a well-prepared business plan.

This is particularly crucial regarding business loan eligibility for new businesses, as the business plan demonstrates your vision, strategies for the future, competitive advantage, and professional commitment.

To ensure you qualify for the business loan, create a robust business plan that highlights your business’s profitability and longevity. This will help convince the lender of your business loan eligibility checks.

How to check your credit score?

You can check your credit score for free in just a few steps on the Tata Capital website or our Moneyfy app. Here’s what to do.

1. To register as a new customer, enter your details, such as your name, email, mobile number, Aadhar and PAN numbers. You will receive a one-time password (OTP) on your registered contact. Your credit score will be calculated once you enter the OTP.

2. If you’re an existing customer, log in with your registered mobile number. Generate and submit the OTP to check your credit score.

To sum up

Here’s what you must do to check all business loan eligibility checkboxes.

1. Maintain and constantly improve your credit score by repaying your loans in time, maintaining a diverse credit portfolio, and keeping a low credit card utilisation rate.

2. Optimise your cash flow and expenditure to maintain a favourable and healthy bank balance over time.

3. File your income tax returns and computation of income on time.

4. Create a comprehensive business plan showcasing your business’s growth potential and profitability.

5. Apply for a business loan with a financial institution that offers competitive interest rates, a hassle-free business loan application process and quick approvals like Tata Capital.

Whether you need a business loan to meet day-to-day expenses or to finance the expansion of operations, all you have to do is apply with Tata Capital.

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