Get the Tata Capital App to apply for Loans & manage your account. Download Now


Equipment Finance

Avail Digital Equipment Loans
up to Rs. 1 Crore

  • Attractive ROIs
  • Customizable Loan tenure

Equipment Leasing

Avail Leasing solutions
for all asset classes

  • Up to 100% financing
  • No additional collateral required

New Commercial Vehicle Financing

  • First time user
  • Retail and strategic Clients

Used Commercial Vehicle finance

  • Repurchase
  • Refinance
  • Top up
  • Balance Transfer

Tata Capital > Blog > Loan for Business > What is the Role of Balance Sheets on Getting a Business Loan?

Loan for Business

What is the Role of Balance Sheets on Getting a Business Loan?

What is the Role of Balance Sheets on Getting a Business Loan?

When you borrow a business loan, you may be asked to furnish the following documents:

  • Bank statements
  • Latest ITR
  • Balance sheet
  • Profit and loss account

Of the documents mentioned above, lenders review a company's balance sheets of the last year or more to evaluate its financial profile and growth curve. This assessment helps them arrive at a company's business loan eligibility. 

The balance sheets act as a snapshot of the company's financial stability, providing crucial information on assets, shareholders' invested capital/equity, and liabilities. As such, the document keeps a record of what your company owns and what it owes (outstanding debt) at any point in time.

Financial institutions typically use your balance sheets to gain a fair idea of your business' creditworthiness, allowing them to determine a loan amount your business is eligible for. Thus, no matter what your funding requirements are, you'll need a robust balance sheet for loan approval.

Additional Read: How to Create a Favourable Financial Forecast before Applying for a Business Loan

How lenders review balance sheets?

When reviewing your business's overall financial stability, a lender primarily considers three financial reports: profit and loss statement, cash flow forecast, and business balance sheet. For loan application approval; all three financial documents must show a positive trend. 

Financial institutions also use your company's financial records to determine how much money they should lend, including the business loan interest rateand repayment terms. This assessment primarily helps them determine the risk of lending a loan to your company. 

Moreover, when reviewing your company's balance sheets, lenders consider the following:

Asset considerations –

Lenders will compare the balances of cash and account receivables from one period to another, and determine your account turnover rate. They also check how liquid your assets are to know how much operational cash you have. And assess how well you use your assets to generate revenue and repay the debt.

Liability considerations –

Lenders will evaluate both your short-term liabilities (rent, payroll, etc.) and long-term liabilities (outstanding loans, deferred taxes, etc.) to check your credit repayment capacity.

Additional Read: How to Submit Your Business Loan Documents like a Pro and Get Them Approved?

Unbalanced balance sheets, where liabilities are more than assets, are often viewed unfavourably by the lenders, making it difficult for a company to qualify for business credit. 

Thus, to optimise your financial position, you must pay due diligence to keep your company's balance sheets up-to-date and accurate. Only then, you can show robust financial health to the lenders and avail the necessary funds without difficulty. 

So, if you already boast of excellent financial health, use an online business loan calculator to determine the exact amount of funds you can obtain from a finance company.

In summation

If you have been looking for a suitable finance solution for your business, then your search ends at Tata Capital. With us, you can secure quick business loans, customised to meet your business-specific needs and budget constraints efficiently.

Besides, if you are concerned about what your EMI commitments will look like, you can rely on our easy-to-use business loan EMI calculator. So, why wait? Get in touch today!

Leave a Reply

Your email address will not be published. Required fields are marked *