What are the requirements to get a business loan?

Businesses often need funds for their operations. It might be for meeting their working capital needs, to fund their growth, or to meet a standing financial need. Whether it is a start-up or an established business, funds are an integral part.

When it comes to a source of finance, business loans come in handy and help businesses improve their cash flows. Banks and Non-Banking Financial Companies (NBFCs) offer attractive business loans to which businesses can avail themselves as and when required.

However, when it comes to availing of a business loan, there are certain requirements that businesses have to fulfill. These requirements include the following –

● Qualification on the eligibility parameters

● Submission of the relevant documents

● A loan processing fee

● Collateral for the loan

Let’s assess each requirement in detail –

● Eligibility parameters

Every lender has a set of business loan eligibility parameters that businesses should fulfill to qualify for the loan. The exact parameters to qualify for the loan vary across lenders. However, some of the commonly established business loan eligibility parameters include the following –

Eligible businessesA business loan is granted to specific types of businesses. These include self-proprietorship businesses, partnership firms, public or private limited companies, and businesses engaged in providing services or trading businesses.
Age of the business
Lenders usually offer loans to existing businesses that have been running over the last few years. A business vintage of 6 months to up to 3 years is usually required
Minimum turnover
There is a minimum turnover requirement. If your business’s annual or monthly turnover meets the minimum specified limit, you would be eligible for the loan. This varies by lender.
A minimum annual profit is also an important requirement. Lenders specify the minimum profitability and businesses whose profits are above the minimum limit qualify for the loan. This too varies at the lender’s individual discretion.
Age of the applicant
The applicant’s age is also an important requirement in many cases. Business loans are usually offered to individuals aged 21 years and above
Credit score
Lastly, the credit score is an important parameter that determines the sanction of the loan. To avail of the loan, businesses should have a minimum credit score of 650 and above

● Required documents

Loan processing and sanction require businesses to submit the specified documents using which the lender can verify the business loan eligibility and also check its authenticity. Like eligibility requirements, the documentation also varies across lenders. However, some of the basic documents which are essential for the business loan include the following –

Any one of the following documents

Any one of the following documents –

  • Passport
  • Aadhaar card
  • Driving license
  • PAN Card
  • Voter’s ID Card
A valid address proof

Any one of the following documents –

  • Passport
  • Aadhaar card
  • Driving license
  • Voter’s ID Card
  • Utility bills for the past months
Financial documents
  • Bank statements for the last 3-6 months
  • Income tax returns for the last 2-3 years
  • Computation of income statement
  • Audited Balance Sheet and Profit & Loss Account
  • Other financial statements of the business as required by the lender
Proof of business continuation

Any one of the following documents –

  • Trade license
  • GST registration certificate 
  • Income tax returns
  • Establishment certificate 
Other business-related documents

Any of the following documents depending on the type of business that you have -

  • Declaration of the sole proprietorship
  • Certified True Copy of the Partnership Deed
PAN Card of the business or the applicant (for sole-proprietorship)
Loan application form, filled in completely and signed

● Loan processing fee

When you submit the loan application form with the required set of documents, you would have to pay a loan processing fee to the lender too. This fee is a one-time, non-refundable fee, paid for the loan application to be processed. The processing fee is expressed as a percentage of the loan amount, up to a maximum amount. For instance, the processing fee can be 1% of the loan amount subject to a maximum of Rs.2500.

You would have to pay this fee so that your loan application can be processed by the lender.

● Collateral security

In the case of a secured business loan, you have to mortgage an asset as collateral security to avail of the loan funds. In such cases, the loan quantum depends on the value of the security that is pledged as collateral.

Assets that a business can pledge as collateral security include plant and machinery, property, investments, etc.

The bottom line

These are the basic requirements of a business loan. In some cases, lenders also insist on a detailed business plan that depicts how the loan would be used and the projected cash flow over the years. So, it is a wise choice to prepare a detailed business plan when you apply for a loan.

Thanks to the online medium, applying for and availing of a business loan has become a simple affair. You just have to keep the aforementioned requirements in mind when you apply for the loan.

IndiaLends also offers attractive business loans which do not need collateral securities, are paperless, and are sanctioned at the earliest through its digital platform. So, if your business needs a capital boost, check the requirements, fulfill them and apply for a business loan easily.