Eligibility Criteria For Business Loans In India

A business loan is one of the most common means of financing small and medium-sized enterprises. Visit to know more here!

18 Sep,2022 12:31 IST 17 views
Eligibility Criteria For Business Loans In India

Capital is crucial to start, operate, and expand a business. However, financing your business via equity investing or crowd-funding can be challenging. In such a situation, business loans are your saving grace in India.

Read on to know more about India's business loan eligibility criteria.

What Is A Business Loan?

A business loan is a credit facility that can help you pay for expenses such as employee salaries, office supplies, and rental space until your business is on track or until you receive funds from other sources.

Today, Indian banks and non-banking financial companies offer business loans with attractive interest rates, flexible payment terms, and many other benefits to help your business.

Types Of Business Loan

Banks, unlike equity investors, have robust structures and methodologies for lending depending on various factors. Therefore, before you apply for a business loan, you should familiarize yourself with the various business loan programs offered by the bank and apply for the right one.

For example, the government has many schemes available for MSMEs, which many NBFCs provide.

Typically, there are two types of business loans:

1. Secured Loans

These are loans where the borrower pledges an asset as collateral. During non-payment of the loan amount or default, the collateral ownership will transfer to the bank, non-bank financial company, or lender. For secured or small business loans, it is essential to meet this eligibility to post collateral.

Financial institutions, then, resell collateral to recover outstanding loan payments. Lenders will not immediately confiscate your collateral. If your EMI payment is a few days late, your bank or NBFC will give you time to pay. However, if you continue to fail to pay, you will need to forfeit the collateral.

2. Unsecured Loans

An unsecured loan is one where the risk lies more with the lender than with the borrower. For business funding, getting an unsecured loan can be a little tricky. However, if the amount you need is small, you can avail of a business loan.

It is noteworthy that the approval levels for unsecured business loans depend on the creditworthiness of the borrowing bank or non-bank financial company. So, if you're looking for an unsecured loan, ensure your business has well-defined capital needs and commendable credit history.

Eligibility Criteria For A Business Loan

While the detailed business loan eligibility criteria would differ for each lender, it is almost equivalent in most cases. Find the most common rules are as below:

1. Age:

The applicant's minimum age should be at least 18 years. The upper age limit can range from 55 years to 70 years, depending on the lender.

2. Nationality:

The applicant must be an Indian citizen, holding no criminal records.

3. Credit Score:

Credit score is the most crucial and essential part of lending. A score of 700 or above is considered excellent. Additionally, the borrower's credit history should be as clean as possible, with no defaults with any bank or financial institution in India.

4. Type of business:

The company must incorporate itself as a private or public limited liability company, limited liability partnership (LLP), or sole proprietorship or partnership. Individuals, SMEs, MSMEs, retailers, distributors, and manufacturers engaged solely in the service, trade, and manufacturing sectors are also eligible for business loans.

Documents Required For A Business Loan

The primary documents required for getting a business loan in India are:
• Duly filled application form
• Passport-size photographs
• A well-defined, self-drafted business plan
• KYC documents (PAN card, Aadhar Card, Passport, Utility Bills, etc.)
• If the business is in partnership, then KYC documents of all the partners might be required.
• Bank statement of the past year
• Income Tax Return (ITR) for the last three years

The above list might have additions and subtractions due to the lender-specific requirements.

Apply For Business Loans With IIFL Finance

IIFL Finance is a leading instant business loan provider. We provide quick loans for small businesses with small financial requirements up to INR 30 lakh with minimal business loan eligibility requirements. You can check the interest rate at your nearest IIFL Finance branch or online.

The entire process, from application to disbursement, is 100% online. The disbursals take 24-48 hours. This way, you can fulfill various business needs and repay them per cycle. Apply for an IIFL Finance business loan today!

Frequently Asked Questions

Q.1: How does a salary affect your business loan eligibility criteria?
Ans: The applicant's income is essential to getting a business loan. It gives the lender confidence that the borrower will be on time and is financially sound.

Q.2: What is the minimum CIBIL score required to avail of a business loan?
Ans: Different lending institutions have different minimum requirements. However, having a credit score of 700 or above is considered safe.

Q.3: What is the difference between a secured and unsecured loan?
Ans: In a secured loan, the borrower bears the risk. They need to pledge an asset in a secured loan that will be forfeited in case of regular defaults. On the other hand, in an unsecured loan, no collateral is required, and the risk remains in the hands of lenders.

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