Be it to buy a home or meet business needs, today, loans are available for all kinds of requirements one can think of. With so many options available out there, it becomes important to choose the right option wisely. One must also make sure that the loan fulfils the needs of the borrower without overburdening them. You can apply for a loan against property in India or a business loan if you need funds for business.
What is the difference between the two? A loan against property is a secured loan that can be availed of against collateral, has a long loan tenor, competitive interest rates and can be utilised for any purpose. Business loans, however, are unsecured loans with higher interest rates that do not require security, have a shorter repayment tenor, and can be used for business purposes only.
Loan for Business
Business loans are much focused – they money availed of can only be used to meet business expenses. For example, when a person wants to expand their business, boost their working capital or purchase some equipment for business needs, they can avail of a business loan.
Factors that Impact Your Business Loan Eligibility
Both starting and running a business can lead to financial pressure, you must have a good amount of running capital to ensure that things go smoothly. Arranging funds for business is one of the most important things before starting a business. Business loans can be of great help as they provide funds specifically for your venture. But for the loan application to get accepted, you need to fulfil certain eligibility criteria for a business loan. They are:
Age of the Applicant
The age of the borrower is one of the first things that a lender investigates when you apply for a business loan. For applicants younger than 25 or older than 60, it becomes difficult to find a bank willing to lend a business loan. This is because age is an important factor when availing of a business loan as it decides your repayment capacity.
Age of the Business
When screening a business loan application, lenders take into consideration business continuity or age. Older businesses are generally more financially stable and secure. So, lenders are more inclined to trust businesses that have been around for three years or more as compared to start-ups. Thus, the age of the business is one of the major factors that affects business loan eligibility.
Your eligibility for a business loan might get affected if you can’t establish the purpose for taking the loan. Your lender will ask you for an elaborate business plan. They will also enquire you about your repayment plan. The eligibility for such loans is also affected by the loan amount you are willing to borrow. For a high loan amount, long business continuity and good turnover is a must.
Cash Flow of Business
If your business is at least one-year-old, you will need to submit income proof for the business. A healthy cash flow is an important factor that impacts the eligibility for a business loan. If yours is a start-up, then a proper business plan and potential growth strategy plan will need to be shown. This helps the lenders understand which business or company is making enough money to pay back the business loan.
Your business loan eligibility is also dependent on the documents related to the business. To be eligible for a business loan, you must submit your business certificate, documents for proprietorship verification, Form 16 of the last couple of years, business & personal account statement, and business licenses from the governing authorities. Once you satisfy these criteria, you qualify for a business loan.
This is an important factor that impacts your business loan eligibility. In the case of an older business, the company’s credit history is also considered. However, for a new business, the credit scores of the owners are considered. So, if you’re planning to start a business, then it is imperative that you check and improve your credit score before applying for a business loan.
If you are planning to take a business loan, you must also know that just like you get tax benefit on home loans, any interest levied on a business loan is also tax-deductible as they are a business expense and not revenue. Thus, to avail of a business loan, make sure that you comply with all the factors and then apply for the business loan. If you fulfil all the eligibility criteria, then your chances of getting a business loan are very high. Go through all the conditions of the lending institution and fulfil them before you submit the business loan application to the bank.