A business loan is a credit facility provided by the schedule banks, non-banking financial companies and fintech companies registered under the Reserve Bank of India to facilitate the entrepreneurs in India for meeting up the urgent requirement of the funds to operate the said business smoothly at competitive rate of interest as per the profile of the loan applicant for a certain period of time. So, it becomes a very obvious query from the part of the business persons that who are eligible to apply for business loan and what are the business loan eligibility criteria in India?
Who are eligible to apply for a Business Loan in India?
The following entities are eligible to apply for a business loan in India:
- Retailers
- Manufacturers
- Traders
- Sole Proprietorship Firms
- SMEs, MSMEs and Large Enterprises
- Partnership Firms and limited liability partnership firm (LLP) involved only in Manufacturing, Trading or Service sectors
- Self-employed individuals/professionals – CAs, Doctors, etc.
- Private limited companies and closely held limited companies
Self Employed Professionals (SEP) are usually Chartered accountants, doctors, company secretaries, architects, and designers who are practicing as a professional.
Self-Employed Non-Professionals (SENP) includes individuals such as traders and manufacturers.
Entities like Limited Liability Partnership Firms (LLP), Partnerships firms, Private Limited, and closely-held Limited companies are those that fall under this category. This even includes banks and non-banking financial companies who are looking for funds from reputed banks.
Other customer segments are classified based on the business profile on a case to case basis determined by the lender bank or NBFC or fintech companies. Applicants should check with the bank or NBFC or fintech company on their particular policies and procedures for every business loan and business loan eligibility criteria.
The business loan eligibility criteria in India also include the documentation requirement, interest rate so offered and loan tenure which differ for every business loan from lender to lender.
Business loan Eligibility Criteria in India:
In order to assess the business loan eligibility criteria in India, one must go through the types of business loan that are provided by the scheduled banks, NBFCs and fintech companies in India. This is because the criteria to avail business loan varies as per the product of business loan.
Business loan in India has majorly been divided into two segments:
1.Unsecured Business Loan
2. Secured Business Loan.
1.Unsecured Business Loan:
An unsecured business loan is a credit facility provided to those applicants who are not willing to provide any fixed asset in form of tangible assets like self-owned residential or commercial or industrial property as collateral security and asking to avail the loan mainly on the parameters of the business loan eligibility criteria as per the policies of the lender bank or NBFC or fintech company where the proposal been placed.
So, to get an unsecured business loan the applicant must fulfil the basic business loan eligibility criteria as mentioned below:
- Age: The minimum age for the applicant who can be a proprietor or a partner or a director as per the profile of the company must be 23 years during the time of application and should not be above 65 years during the maturity of the loan.
- Credit Score and Credit History: The credit score and credit track records are considered to be the first and foremost parameter of business loan eligibility criteria that one should be fulfilling while applying for an unsecured business loan. The personal credit score of 750 for the individuals with satisfying credit history are very much required for a successful application of an unsecured business loan. In case of company being an applicant, the company credit score must be within 1 to 5.
- Ownership: The place of business or the residential address of the loan applicant who may be the sole proprietor or one of the partners or directors of the company must be ownership.
- Business Vintage and Continuity: The business must be having a complete vintage period of 3 years. Older the business, greater the chance of getting a business loan with favourable interest rate and other conditions.
- Positive Financial Trend: The business should be having a positive financial trend in the course of the business in the last three years This is considered as one of the important parameters in business loan eligibility criteria. The negative trend in form of loss or deterioration of profit are not entertained by the lender bank or NBFC or fintech companies for unsecured business loan.
- Banking Transactions: Every lender bank or NBFC or fintech companies where the proposal for unsecured business loan is placed always expect the majority business transactions are made through business accounts in the bank compare to the turnover shown as per the financials.
Documents required for unsecured business loan as per the Business Loan Eligibility Criteria in India:
The documents that are required majorly to match the above-mentioned business loan eligibility criteria in India are as follows:
Know your Customers (KYC) Documents:
The documents which are required to be submitted by the applicant while applying for the loan with scheduled banks or NBFCs or fintech companies are as under:
- Proof of Identity- Pan Card, Aadhaar Card, Voters’ ID Card, Passport, Driving Licence with latest photographs
- Proof of Address- Aadhaar Card, Voters’ ID Card, Passport, Utility Bills, Digital Ration Card
- Ownership Proof- Latest Electricity Bill and latest property tax receipt
Business KYC Documents:
The documents that are required to match the business loan eligibility criteria to establish the required parameters of business identity, vintage and continuity are as follows:
- Company Pan Card
- Partnership Deed or MOA and AOA as per the profile of the company
- Letter of Incorporation and Share Holding Pattern
- Trade licences for the last three consecutive years and one older trade licence
- Professional Tax Certificate
- Udyam Aadhaar registration Certificate
- GST Registration Certificate
- Other applicable licences as per the profile of the business entity like FSSAI, Drug Licences etc.
Financial Documents:
The financial documents that are required to establish the vital point of business loan eligibility criteria in India of positive financial trend in profitability and growth of the business are mentioned as under:
- Income Tax Returns for the last two or three years as per the policies of the lender bank or NBFC or fintech company where the loan application been placed
- GST returns for the last one year
Documents of Banking Transactions:
To establish the authenticity of the total turnover and profitability of the company so produced as per the financial documents the applicant business person must submit the statements of all the bank accounts for the last one year to comply with the business loan eligibility criteria.
Credit Track Records:
All the credit history track records in form of sanction letters and loan account statements of the active and ongoing loans are required to be submitted along with the no objection certificates of the closed loans as per the business loan eligibility criteria in India.
2. Secured Business Loan:
A secured business loan is provided to the applicant business person by the banks and NBFCs in form of a credit facility which can be a working capital or a term loan or a hybrid version of both as per the requirement of the business model and purpose by mortgaging a collateral security.
The collateral security that are mostly accepted by the banks and NBFCs are self-owned residential or commercial or industrial property or properties. Apart from these stock hypothecation and securities in form of fixed deposits are also accepted by the schedule banks to complete the process of securitization and fulfilling the parameters required for business loan eligibility criteria.
For secured business loan the applicant must full fill the below mentioned basic parameters:
i. Age: The minimum age for the applicant who can be a proprietor or a partner or a director as per the profile of the company must be 23 years during the time of application and should not be above 70 years during the maturity of the loan. In some cases, the loan maturity age can be extended to 90 years if applicant of the loan is not a financial co-applicant.
ii. Credit Score and Credit History: The credit score and credit track records are considered to be the first and foremost parameter of business loan eligibility criteria that one should be fulfilling while applying for an unsecured business loan.
The personal credit score at least 700 for the individuals are required with satisfying credit history for a successful application of an unsecured business loan. In case of company being an applicant, the company credit score must be within 1 to 5.
iii. Ownership: The place of business or the residential address of the loan applicant who may be the sole proprietor or one of the partners or directors of the company must be ownership.
iv. Business Vintage and Continuity: The business must be having a complete vintage period of 3 years. Older the business, greater the chance of getting a business loan with favourable interest rate and other conditions.
v. Positive Financial Trend: The business should be having a positive financial trend in the course of the business in the last three years This is considered as one of the important parameters in business loan eligibility criteria. The negative trend in form of loss or deterioration of profit are not entertained by the lender bank or NBFC or fintech companies for unsecured business loan.
vi. Banking Transactions: Every lender bank or NBFC or fintech companies where the proposal for unsecured business loan is placed always expect the majority business transactions are made through business accounts in the bank compare to the turnover shown as per the financials.
vii. Clear Title Rights and Valuation of the Properties: The title rights of the properties that are offered to be mortgaged should be free of encumbrances and must be properly demarcated and within the possession of the loan applicant.
The loan applicant must provide the necessary documents to establish the same in order to meet the secured business loan eligibility criteria. Apart from this the required documents are also asked to be submitted to evaluate the total valuation of the property so as to derive the exact loan amount.
Documents required for Secured Business Loan as per the Business Loan Eligibility Criteria in India:
The documents like Know Your Customer (KYC) documents, Business KYC documents, financial documents, bank statements and credit track records are also required the way it is required for unsecured business loan.
But the most important part of secured business loan eligibility criteria is the assessment of the clear title rights of the properties that are to be mortgaged along with the calculation of the exact valuation of the said property or properties for the determination of the loan amount.
So, the legal and technical documents that are required to be submitted by the loan applicant to fulfill the secured business loan eligibility criteria for a successful loan application are stated as under:
i. Title Deeds and Chain Deeds of the Property:
All the registered title deed(s) and chain deed(s) of the property or properties are required to be submitted for thorough scrutiny and searching by the legal team and empaneled lawyers of the lender bank or NBFC for secured business loan eligibility criteria.
ii. Proof of Mutation and Records of Rights:
The legal documents must be accompanied with all the records of rights and documents establishing the right to use the said property with the help of mutation certificates from the authorized civic bodies like Municipal Corporations, Municipalities etc. and record of rights from the BLRO along with updated property tax receipts and land revenue tax receipts as per the applicability for secured business loan eligibility criteria.
iii. Sanctioned plan of the Constructed Buildings:
The sanctioned plan from the authorized civic bodies like Municipal Corporation or Municipality or Zilla Parishad or Panchayat as per the applicability and depending upon the situation of the property or properties for the reinforced concrete constructions (RCC) and factory sheds that are constructed to be submitted for the verification and evaluation so as to determine the loan to value (LTV) amount.
How the Business Loan Eligibility Criteria can be improved?
It is very much a proven fact that if a business loan applicant matches all the above parameters and provides the required documents as discussed then an application of an unsecured or a secured business loan with the scheduled banks or NBFCs or with fintech companies are possible without any trouble.
But an application does not mean that the proposal gets the final sanction and disbursement. So, to make the whole process of application, sanction and disbursement a successful one every business loan applicant must look after the below mentioned points to improve the business loan eligibility criteria as well:
i. Income Assessment: The application for the loans should be done after thorough assessment of the total income it plays the most vital and pivotal role for both unsecured and secured business loan eligibility criteria while determining the loan amount.
ii. Turnover: The annual turnover of the business above rupees one crore makes it easy to apply and qualify easily for business loans from leading banks and NBFCs although the loan amount so offered may vary from lender to lender.
iii. Present Obligations: The present obligations are needed to be considered as well with respect to the total income so as to determine the loan application amount as in general terms the fixed obligations to income ration (FOIR) should not be above 50 percent.
iv. Rate of Interest: The rate of interest must be checked with the lender bank or NBFC or fintech company before accepting the offer as not so competitive interest rate as per the profile of the applicant may lead to difficulty in repayment.
v. End Use or Purpose: The end use or purpose should be very much clear from the part of the applicant before submitting the application as this is considered to be the trickiest part among all the business loan eligibility criteria.
This is because if the sanctioning authority is not convinced of the purpose, then the proposal may be declined.
Conclusion:
The modern age businesses operate at a rapid pace and witha sizable portion of the shift in the financial structure and growth in individual purchasing power can be attributed to this. The banks, NBFCs and fintech companies have become more adaptable in their operational norms to accommodate reluctant users from various backgrounds as well.
NASKAR FINANCIAL SERVICES have come up with innumerable options for the business loan requirements to accommodate a range of applicants, including self-employed, professionals and non-professionals, business persons, individuals, commercial and agricultural enterprises, ambitious women entrepreneurs and all other business enterprises by providing the most suitable way to develop the business loan eligibility criteria that are required for availing business loan successfully.
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