Every business requires sufficient capital reserves to continue the smooth daily functioning of operations and aspire for steady growth and expansion. Business owners could obtain the capital needed for a company from equity, private investors, reinvesting company profits or raising debt from financial institutions like Tata Capital.

A good line of credit can help companies grow consistently in good times and aid in survival during challenging circumstances. However, borrowers must keep a few aspects in mind on credit eligibility before applying for loans to financial institutions.

Here are 4Cs of Credit Eligibility borrowers must be familiar with before submitting loan applications to lenders –

Character

One of the crucial factors lenders assess before determining eligibility is the borrower’s character. How is their financial standing? Market reputation? Repayment track record? Credit History? 

The Credit Score offers a detailed report highlighting most of these parameters. The higher your credit score, the brighter are the chances of loan approval.

A corporate borrower’s sense of integrity helps in securing a loan. If the borrower has kept his financial commitments in the past, made timely repayments, then in such cases, the chances of getting a loan sanctioned are higher.

Besides the credit scores, lenders assess market reputation, supplier relationships, market share, vintage of trade associates to understand borrowers’ qualitative aspects before determining credit eligibility.

Capital:

Financial institutions only sanction a certain percentage of a borrower’s loan requirements. 

Let us say the borrower is seeking a business loan to purchase machinery priced at Rs 50 lakhs. The lender will only disburse about 80 to 90% of the asset value, and the remaining amount, which is the down payment, has to be shelled out by the borrower.

The higher the down payment, the better are the chances of securing a loan at competitive terms from the lender. Lending institutions lay weightage on the concept of capital because it helps minimise the risk assumed by the lender.

Thus, corporate borrowers need to evaluate the amount of funds they can spare towards the down payment and be clear on the amount of loan required before approaching the lender.

Collateral:

Traditionally, loans are sanctioned against collateral. A borrower mortgages assets 50-120% of the loan value sought depending on the underlying risk in advance to seek capital from lenders. 

Businesses that apply for a loan are required to pledge, hypothecate, or lien an item of financial value, termed as collateral. Collaterals can be either movable or immovable. An example of movable collateral is a vehicle, while a house property becomes immovable collateral. Businesses may also offer financial collateral such as fixed deposits, insurance policies, share certificates, and government bonds, among others.

Collateral protects the interest of the lender in case of default on loan repayments. In such cases, the loan is settled by disposing of the collateral. The higher the value of collateral available, the higher is the credit eligibility. 

At Tata Capital, we offer secured and unsecured loans to corporate borrowers. Reach out to Team Tata Capital to know more about the diverse loan offerings and assess your eligibility.

Context:

Yet another crucial parameter that is considered by financial institutions while sanctioning a business loan is the context of the loan. What is the loan for? What is the business context? How steady or volatile is the industry? What is the viability of the business?

Factors relevant to the sector and industry in which the business unit operates are crucial deciding factors. Furthermore, loan eligibility is decided based on the purpose for which the loan is being applied. Loan eligibility is also determined basis the tenure for which the capital is required.  Access to sufficient capital is no longer a luxury and a must-have for businesses across growth stages to accelerate their reach, turnover, and market share. Evaluate your credit eligibility based on the above four parameters and reach out to experts at Tata Capital to know more about loan offerings that can help you scale your business to the next level. 

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