Businesses can suffer from the shortage of cash flow due to different reasons. This is when they look for funding opportunities, the most popular of which is a business loan. When looking forward to avail a business loan, the first thing that you need to know are the business loan eligibility criteria.
The interest rates, terms, and conditions can vary from lender to lender. Hence, it makes sense to conduct thorough research to check the eligibility criteria for a business loan.
How Can You Check Eligibility Criteria for Business Loan?
If you have taken a business loan in the past and are familiar with their criteria, then it will take a very short time for you to check those requirements on multiple websites.
Steps to check for a business loan eligibility criteria are as follows:
Step 1: Visit a lender or lending institution’s website
Step 2: Click on Business loan option from ‘types of loans available’
Step 3: Click on the eligibility criteria of business loan
What Are The Eligibility Criteria to Apply for a Business Loan?
The business loan eligibility criteria you must fulfil before applying for the loan are as follows:
- You must be a self-employed person.
- Self-employed professionals include chartered accountants, doctors, lawyers, etc., while self-employed non-professionals comprise traders and manufacturers.
- Your age must be between 25 and 65 years of age.
- Business entities like private limited firms, partnerships, and limited liability partnerships can also opt for a business loan.
- You must have at least 3 years of experience in the current business and minimum 5 years of business experience on the whole.
- The minimum annual income must be Rs. 1.5 lakh per annum.
What Are the Documents Required to Apply for a Business Loan?
Lenders keep an eye on the applicant’s credit history to determine if that person is eligible to get the loan or not. After fulfilling the business loan eligibility criteria, make sure that you keep the documents ready before applying.
The essential documents required while borrowing a business loan are as follows:
- Identity proof (includes PAN card, Aadhaar card, driving license, and more)
- Address proof (comprises Aadhaar card, passport, lease agreement, passport)
- Bank statements (for last 6 months)
- Sole-Proprietorship Decleration and Partnership Deed
- Income Tax Returns and Profit and Loss Statement for last 2 years
- Certified copy of Articles of Association and Memorandum of Association
What Are The Types of Business Loans?
After learning about the eligibility criteria, let’s take a look at the types of business loans available in the market:
A term loan is basically a form of loan that you can avail for a specific duration of time and you need to repay the loan in regular instalments. Usually, these loans can be short-term or long-term ranging from 1 year to 10, 20 or even 30 years.
The interest rate under this loan may be charged on fixed or floating method and may differ with fluctuation of market. Term loan is one of the most preferred loans of small and medium businesses.
Working capital loan
Many business organisations take a working capital loan to meet their daily business requirements. These include increasing production, buying raw materials, stock enhancement, improving cash flow, hiring employees, and so on.
The working capital loan is available in short terms up to 1 year tenure. Moreover, the applicant does not need to keep any collateral in the custody of the lender at the time of borrowing the loan.
The start-up loan is favourable for business organisations that have been formed recently. This is because retaining a healthy credit history is difficult for a newly established business. Therefore, before lending, a lender analyses the borrower’s credit profile with the organisation’s to determine the worthiness of the business to receive a credit. The start-up loan is issued to an organisation depending upon their current turnover.
The machinery loan or equipment finance is a credit facility provided to business entrepreneurs. Usually, large-scale enterprises or manufacturing organisations opt for this loan to buy new machinery or update the earlier one. This loan also offers tax benefits to those who avail of this loan. However, its interest rate, repayment tenure, and amount vary from one lender to another.
Letter of Credit
Letter of Credit refers to a special type of credit that the lenders or lending institutions offer to business entities engaged in international trade. The seller needs a letter of credit from the buyer to ensure completion of the transaction without hassle in case of export or import.
In a foreign trade, businesses require a payment guarantee before they sign the trade agreement. This is where they need a letter of credit.
Lastly, a lender considers many factors before approving your business loan. So, now that you know the business loan eligibility criteria, be ready with the necessary documents and follow the guidelines carefully when applying.