Thursday, April 11, 2019

5 Habits that Can Increase Your Business Loan Eligibility

Many times, business owners utilise their working capital to purchase fixed assets. On the other hand, some don’t even have sufficient funds to buy the same. Others find themselves indebted to vendors and financial institutions. The rest look for additional finance to expand their operations.

A business loan is one of the go-to financing options that can address all these situations effortlessly. You can apply for these loans online after which the lender sanctions them within 24 hours.

Although NBFCs have made the process of availing business loans quick and easy, you still have to fulfil all their eligibility requirements. 5 habits that can enhance your eligibility for business loans are as follows.

  1. Ensure a consistent turnover
You have to submit your financial statements like Profit & Loss Account, Balance Sheet, etc. to show your business turnover. Lenders want to ensure that your company has consistent performance and turnover. Satisfactory revenue will make you more eligible for business loans.

  1. Have a high credit score
Improving your credit score is one of the ideal ways to increase your business loan eligibility. You must ensure that your score stays above 700.

Paying your loan EMIs and credit card bills in due time increases the score. Opt for a secured credit card if you have a low or zero credit score. You have to pay the total amount due within the deadline and keep the credit utilisation under 30% of your credit limit to improve your CIBIL score.

Credit report

Lenders inquire about your financial habits via credit reports when you apply for a loan. Hence, go through it once before applying. Your credit report may include errors and mistakes that can lead to rejection of your loan application. In such cases, you have to settle these inaccuracies with the lender or credit company.

  1. Create a sound business plan
Creating a business plan that covers all aspects of your firm is another way to increase your eligibility for this collateral-free loan. The plan must include every detail about your company like:

       Current revenue
       Estimated revenue in the future
       Marketing strategies
       Loan amount
       Purpose of the loan, etc.
A sound and robust plan will improve your business loan eligibility.

  1. Have all the necessary documents ready
Other than your financial statements, you need to submit the following:

       KYC documents – PAN, Aadhaar, Passport, Voter ID, Driving License, etc.
       Proof of business – Memorandum or Articles of Association, Shops & Establishments Act certificate, GST registration, Trade License, etc.
       Bank account statements of the previous month.
       Income tax returns of the last year.
Ensure that you have these entire documents ready to fulfil the business loan eligibility criteria.

  1. Have a prolonged business vintage
Financial institutions like Bajaj Finserv need a business vintage of at least 3 years to sanction business loans. Having years of experience makes you more eligible for such a collateral free loan.
Besides these, two other habits that can also increase your eligibility are:

Apply for the right amount

A financial institution will reject your loan application if you apply for an unreasonable amount. Such a rejection also causes your credit score to go down. The lender will add a note in your credit report regarding this rejection.

If you apply for a second time, the respective lending institution may also reject your application after they make a credit enquiry and view this note.

Hence, applying for an appropriate loan amount is critical to avoid all of the above. You can use an online loan eligibility calculator to check precisely. This calculator shows you the loan amount you are eligible for based on your turnover, capital, net profit, existing loans, business vintage, etc.

Lower your fixed monthly obligations

Lenders prefer customers who keep their fixed monthly obligations below 50% of their monthly income. Such a percentage gives you more room to pay your loan EMIs. You have to close your existing loans and pay your credit card debts to lower your fixed monthly obligations.

Keep all these points in mind to increase your business loan eligibility. You must make sure that your application gets accepted in the first try as rejection or too many credit enquiries will lower your CIBIL score. Prepare a checklist before applying for a business loan and get the funds sanctioned at one go.

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