Getting a Business Loan is a well accepted and reasonably easy way to expand your business, broaden your avenues, or get the necessary equipment you require to manage your operations. It is also a good idea when you are planning to optimise cash cycles and service new orders. However, the process that goes into obtaining a loan can be cumbersome. This is because certain factors affect your Business Loan Eligibility Criteria.
There are various aspects affecting businesses when it comes to obtaining loans. Although these factors usually vary from one bank to another, the underlying concept of these factors is more or less the same. Financing institutions need to know for sure that you possess the ability to repay the loan in due course of time. To make sure repayment is not an issue; banks and lending institutions take the following factors into consideration.
The stability of your business
Having a stable and sustainable business record plays a vital role in increasing your chances of obtaining a loan. After all, it assures the bank that you are dependable and can manage to run a company despite the hardships and grievances that affect it. Your business has to be running for at least three years or so to show that it is unwavering. Making sure that you can run and manage a stable business for at least five years is also imperative. This helps to enhance your chances of securing a loan.
Your personal and business credit score
The bank will conduct a thorough examination of your credit score and credit history, no matter what kind of a loan you are keen to take. Any potential business lender wants to know that you are capable enough to repay the loan, so a credit check is always conducted. You can expect an increase in your interest rates and additional fees if you possess a poor credit score. Taking into consideration your personal credit score is also important. Do not be under the impression that banks won’t look into your personal credit history. It has equal weight-age as your business credit score.
Any outstanding loan or debt
When applying for a loan, if you possess any pending EMIs (Equated Monthly Instalments), it can reduce your eligibility when it comes to loan disbursal and maximum amount. A Business Loan works like any other loan. You need to pay EMIs periodically until you repay the entire loan amount, including interest. If you want to reduce the total Business Loan amount to a high degree, you should think about repaying any outstanding loans beforehand. This helps to increase your chances when you Apply for a Business Loan.
The age of the borrower
Age plays a vital role in loan eligibility. This is because it can affect the repayment capability of an individual. Generally speaking, banks and other lending institutions offer Business Loans to self-employed individual and business people provided they fall within the age bracket of 24 to 65 years. The age limit can differ from one financial institution to another, so it is best to check this out in advance.
Your financial statements
The financial statements of your company, both the current and previous ones, are taken into consideration when going in for a business financing. With the help of these statements, judging and coming to a conclusion about your repayment capacity is quickly done. Any financial instability and glitches that occur, owing to mismanagement or any other cause, reflects poorly on you and your business, and lending institutions will not view it favorably. As a result, it will minimize your chances of securing a loan for your business. A well-maintained and clean balance sheet portrays sensible transactions and financial stability. This works by enhancing your likelihood of obtaining a loan.
The amount of your down payment
When the bank knows for a fact that you are dedicated to your business, it automatically offers you better terms. A large down payment or huge personal equity can be costly, but it assures the financing institution that you are serious and are trustworthy when it comes to paying back your loan. If you cannot afford to put up collateral, charging added interest and fees or making your repayment period short is common. You can apply for a Business Loan online or even head personally to the financer.
These are some of the factors that play a vital role when it comes to how eligible you are for securing a Business Loan. Keeping these in mind is ensures nothing comes in the way of securing a good loan for your business. Despite the jargon and complicated words used in loan negotiations, the main factors that impact Business Loan eligibility are the risk and return. Making money on the deal and losing as little as possible is what the financing institution wants to achieve. The return on their loan hinges on you repaying the loan, potential interest, and other fees systematically.