written by | December 26, 2022

Business Loan Eligibility Criteria: Important Documents Required

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Business loans are financing provided to businesses to help them grow, expand, or cover operational costs. Businesses can apply for loans from banks, credit unions, or online lenders. The type of loan and the interest rate will depend on the business’s creditworthiness and financial history. Business loans can be used for various purposes, including working capital, equipment purchases, inventory, and real estate. Loans can be short-term or long-term and may be secured or unsecured. The application process for a business loan will vary depending on the lender, but most will require the business to provide financial statements, tax returns, and a business plan. 

Did You Know? The terms of a business loan will vary depending on the type of loan, the lender, and the business’s qualifications. 

An Overview On Business Loan

Business loans can be a great way to finance a small business, but it’s important to shop around and compare rates and terms before signing any loan agreement. There are a few things to remember when looking for a business loan, including the type of loan you need, the amount of money you need, and the repayment terms. The first step is to figure out what type of loan you need. 

Also Read: PM Kisan Samman Nidhi - Eligibility, Registration & Benefits

Categories In Business Loans

There are a few different business loans, including short-term loans, long-term loans, and lines of credit. Read below to understand the real use of these three loan types:

Short Term Loans

Short-term loans are typically used for smaller purchases, such as equipment or inventory, and have shorter repayment terms, such as six months to a year.

Long Term Loans

Long-term loans are typically used for larger purchases, such as real estate, and have longer repayment terms, such as five years or more. 

Lines of Credit

Lines of credit are like credit cards for your business; you can use them as needed and make payments as you go. 

Once you know the loan type, you can start shopping around for the best rates and terms. There are a few places to look for business loans, including banks, credit unions, and online lenders. Banks are a good option if you have good credit and a strong business plan. Credit unions may offer lower rates and more flexible terms. Online lenders may be a good option if you have bad credit.

Why Do You Need A Business Loan?

A business loan is a loan that is specifically intended for business purposes. There are several reasons why a business might need to take out a loan, such as to finance the purchase of new equipment, expand the business into new premises, or cover unexpected expenses. Taking out a loan for personal expenses can put the business in serious financial difficulty, as it will be difficult to repay the loan and the interest charges. Taking out a too-large loan could put the business at risk of defaulting on the loan, damaging the business's credit rating.

When taking out a business loan, shopping around and comparing the different loan options available is important. Several factors are to consider, such as the interest rate, loan term, and repayment schedule. No matter what you need the loan for, it is important to consider all your options before deciding. 

Also Read: Know How To Get Instant Loan without CIBIL Score

Eligibility Criteria For Business Loan

The interest rate on a business loan is one of the most important factors to consider. You will want a loan with the lowest interest rate possible to save on interest costs. The loan term is also important to consider. A longer loan term will result in lower monthly payments, but you will pay more in interest over the life of the loan. A shorter loan term will have higher monthly payments, but you will save on interest costs in the long run. When choosing a business loan, you must consider the repayment schedule. 

  1. The person should be a citizen of India
  2. The minimum age of the person should be 22 years
  3. Your current business should be more than 3 years in running
  4. Your CIBIL Score should be 685 or higher

Additional factors include things like your history of timely tax payments, bank balance, credit utilization ratio, credit history, etc. Your ultimate eligibility will be assessed in light of all of these.

Business Loan Documentation

Some loans require monthly payments, while others allow you to make payments quarterly or annually. Make sure you choose a repayment schedule you can afford without putting your business at financial risk.

These are the following documents required for the verification

  • Identification Proof: A proof of your identity ex. Aadhar Card or voter Id Card
  • Address Proof: Your residence and business address
  • Bank statement for the last six months
  • ITR of last 2-3 years
  • A financial statement including:  income statements, balance sheets, profit and loss statements, etc.
  • Proof of your business establishment

Also Read: What is No Cost EMI? How is it Different From Regular EMI?

Steps To Apply For Business Loan

The best way to apply for a business loan depends on the type of loan you seek and the lender you are working with. 

In general, the process of applying for a business loan typically includes the following steps: 

1. Different Research types of loans and lenders. 

2. Compare loan offers and terms to find the best fit for your business. 

3. Gather the required documentation, such as financial statements and tax returns. 

4. Submit your loan application to the lender. 

5. Wait for the lender to review your application and make a decision. 

6. If approved, sign the loan agreement and make payments. 

7. If you are not approved, review the feedback provided by the lender and try again with another lender.

Conclusion

Companies require a quantity of capital to fund startup prices or pay for expansions. As such, groups take out enterprise loans to take advantage of the economic assistance they want. A business loan is debt that the business enterprise is obligated to repay in line with the loan’s phrases and conditions.
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FAQs

Q: Why are some applications rejected?

Ans:

A company loan application could be turned down for several reasons. The following are the primary causes:

  1. Insufficient collateral: Most lenders will want some sort of collateral before approving a loan. The application will probably be turned down if the borrower does not have adequate collateral to secure the loan.
  2. Poor credit history: A borrower's credit history is one of the most crucial aspects that lenders take into account when evaluating a loan application. The application is likely to be declined if the borrower has a history of late payments or defaults. 
  3. Inadequate financial documents: Lenders will ask for financial statements and other supporting documentation to determine the borrower's capacity to repay the loan. The borrower's application can be turned down if they don't offer enough supporting documents.

Q: What happens if you miss a payment for business loans?

Ans:

The lender may impose a late fee if the borrower fails to make a payment on time or just makes a partial payment. The lender may file a lawsuit to recover the money due if the borrower keeps skipping payments. This can entail engaging a collection agency, prosecuting the borrower, or seizing the borrower's assets. Additionally, his credit report will be affected, and he might be unable to borrow money in the future.

Q: What is the repayment schedule for business loans?

Ans:

The repayment schedule for business loans varies by lender. The amount is usually distributed in the form of EMI, and borrowers should pay them on time. Some lenders require weekly or monthly payments, while others offer more flexible repayment options.

Q: What is the application process for business loans?

Ans:

The application process for business loans can vary depending on the lender, but generally, you will need to fill out an application and provide financial documentation. The lender will then review your application and make a decision.a

Q: What are the different types of business loans?

Ans:

There are many business loans, including term loans, lines of credit, SBA loans, and merchant cash advances. Each type of loan has its specific terms and conditions, and it is important to choose the right loan for your specific needs.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.