Business Loan Eligibility

When it comes to running a business, you are constantly faced with the challenge of raising ample funds to manage overheads. While some businesses may have to deal with delayed payments, others may even have to work around a dipping market. You may even have unexpected expenses, may need added funds to expand the business, or purchase new tools and equipment.

No matter what requirements you have for your business, getting a Business Loan is one of the most reasonable and reliable options available to raise the funds that you need. Before you apply for any loan, make sure that you check the eligibility criteria thoroughly to increase your chances of getting an approval. 

What are Business Loans?

A Business Loan is provided by banks, non-banking financial companies (NBFCs), and other financial institutions, solely for the purpose of business operations. This could be for an existing business or even a new business. Business Loans can be availed by proprietorship firms, partnership firms, limited liability partnership (LLPs), or any type of organisation to fulfill the following requirements:

  • To get additional cash flow in order to manage business-related overheads
  • To purchase any equipment or tools for the business
  • To expand an existing business
  • To set up a new business venture
  • For purchase invoices in order to obtain goods that are required for the business

What is Business Loan Eligibility?

Whenever a bank or an NBFC extends any finance to a business, they look for certain eligibility criteria. These are criteria which the bank makes use of in order to decide how viable the business is and what are the risk factors involved in extending the credit facility.

The eligibility criteria help the banks determine the following:

  • The type of business: There are certain loans that are reserved for manufacturing units while there are others that provide loans for both service-based businesses and manufacturing units. There are also exclusive loan plans that are reserved for micro, medium, and small businesses. This can be determined by eligibility criteria set by the bank.
  • The qualification of the individual: With proprietorship firms, especially, banks require a minimum educational qualification or work experience based on the type of loan that is extended to them. This helps the bank understand if the individual is qualified to run the business and hence, make viable profits that will help repay the loan according to the terms of repayment set in the loan agreement.
  • The viability of the business: In the case of existing businesses, the turnover of the business is an important factor for eligibility. In the case of new businesses, the projections made for the term of the loan help determine the viability of the business. Loans are provided to businesses that are carried out in industries that are profitable and also provide some assets to the bank in case of defaults in repayment. The viability of the business is a very important factor in understanding the repayment capacity. The more viable the business, the better are the chances of the loan being repaid on time. In case the business is not as viable, the interest rates may be higher, and the collateral required may also be higher.

What are Business Loan Eligibility Criteria?

To increase the chances of approval on a Business Loan, the applicant should meet some business loan eligibility criteria. This may differ from one bank to another. However, there are certain factors that are common to most banks, as mentioned below.

  • The applicant must be a Resident of India
  • The minimum age for applying for a Business Loan is between 18 years and 23 years
  • The maximum age for applying for a Business Loan is usually between 60 years and 65 years
  • In case of a new business, the projections should be as per the standards of the industry that the business is functioning in.
  • In case of existing businesses, there is a minimum turnover that the business must have depending upon the type of loan that the borrower is seeking and the quantum of finance that he or she has applied for.
  • For most Business Loans, the applicant should at least hold an undergraduate degree in the respective field of work or should have pursued any course that is applicable.
  • The work experience required for any existing business is usually between 2 and 5 years.

Factors Affecting Your Business Loan Eligibility

There are various factors that affect the eligibility for a Business Loan. This not only determines whether the loan will be approved or rejected, but can also affect the interest rate that is charged on the loan that is extended.

The most common factors that affect Business Loan eligibility are as follows:

  • Credit Score: Each year, the Credit Information Bureau of India Limited or CIBIL prepares a credit report for businesses and individuals based on their credit behaviour. Depending upon the number of credit facilities availed, the types of credit availed, the repayment history, and other factors, a credit score is provided. This is a number that ranges from 300 to 900. The closer the number is to 900, the better are the chances of availing a loan. A higher credit score means that the individual or the company has a good track record and is a credible candidate to provide loans for.
  • The monthly income: Repayments of the loan are usually in the form of EMIs. This is why the monthly income is a very important factor in determining whether the individual and the business are eligible for a certain Business Loan. It helps the bank understand whether the individual will be able to make regular repayments based on the EMI calculated on the loan amount.
  • The nature of the business: Some industries are more volatile than the other. The chances of getting a loan for a business in a more stable industry such as manufacturing consumer durables is much higher than in a service-based industry. The latter is not a need-based commodity, which means that fluctuations in business can be quite common. This may affect the repayment capacity. Therefore, the interest rate charged on loans provided to businesses in these industries is usually higher.
  • The collateral provided: If the collateral provided for a loan is higher, it automatically migrates the risk on the part of the bank. As a result, the higher the collateral, the better the chances of getting an approval and the lower the interest rates. The loan amount is also higher when the collateral provided is higher. The primary security based on the hypothecation of assets owned by the business is also a reasonable factor in determining the loan. If the equipment or assets are higher in value, the loan amount provided is higher and the interest rate is also usually lower.

Business Loan Eligibility Criteria of Top Banks

As mentioned before, the eligibility criteria for each bank is different.

Here is a list of the top banks and their respective eligibility criteria for Business Loans:

Name of the BankEligibility Criteria
YES Bank
  • This loan is provided to self-employed individuals.
  • Unsecured loans are provided to sole proprietorship firms, self-employed professionals, partnerships, private limited company, LLPs, and, closely held companies.
  • The applicant can be non-professional including services, manufacturers or traders or a professional including Doctors, CS, CA, and architects.
HDFC Bank
  • The applicant can be a self-employed individual, private limited company, proprietor, or partnership firm which is invoked in services, manufacturing, or trading.
  • The minimum turnover required is 40 Lakhs.
  • The individuals in the business should have an experience of at least 3 years in the current field and an overall business experience of 5 years.
  • In the case of existing businesses, there must be profits over the last 2 years.
  • The minimal annual income as per ITR should be 1.5 Lakhs per annum.
  • The applicant should be a minimum of 21 years old and a maximum of 65 years old.
Axis Bank

The following can apply for a Business Loan:

  • Proprietorship firm
  • Individual
  • LLP
  • Partnership Firm
  • Private Limited Company
  • Trust and Societies, including hospitals or colleges.
  • Unlisted Public Limited Companies
  • Business registration is required.
Kotak Mahindra
  • The applicant must have been in business for at least 3 years.
  • Profits must be generated for at least 1 year
  • The loan is available for a sole proprietorship, trust, private limited company, trust, LLP, or partnership firm, which is involved in trade, manufacturing, or services.
  • The turnover of the business should be at least Rs 40 Lakhs.
  • The primary applicant should be a minimum of 25 years of age and should not be older than 65 years at the time of maturity of the loan.
SBI
  • The business must be existent for at least 5 years in the same given locality.
  • The applicant should be the owner of the shop or premises or should have a valid rental agreement.
  • The business should have held a current account for at least 2 years at any bank.
  • The loan is available for corporates, partnership firms, and proprietorship firms.
  • The average minimum balance over the last 12 months should be at least 1 Lakh a month.
  • The business must not fall in the no-go category.

Documents Required to Apply for a Business Loan

In order to confirm that the applicant fulfills all the eligibility criteria required by the bank, certain documents are necessary.

The documents to be submitted along with your Business Loan application are as follows:

CategoryDocument Required
Proof of identityVoter's ID/ Passport/ PAN Card/ Driver's License/ Aadhaar Card
Address proofRation Card/ Utility Bills/ Passport/ Lease Agreement/ Trade License/ Sales Tax Certificate
Proof of income
  • Bank statement for at least 2 years
  • Audited financial documents for at least 3 years
  • ITR for 2 years
  • Balance Sheet for the last 2 years
  • Profit and loss statement
Viability of business (start-up)
  • Detailed business plan
  • Projections for the term of the loan that you are applying for
  • Proof of business continuation
Ownership proof
  • Certified Articles of Association
  • Certified Memorandum
  • Sole Proprietorship declaration
  • Partnership Deed

How to Calculate Your Business Loan EMI on MyMoneyMantra?

With MyMoneyMantra, checking your EMI for a Business Loan is very simple. To begin with, you have to access the EMI Calculator to calculate the EMI of the loan. This can be done by providing details like the loan amount, the interest rate, and the tenure of the loan. Once you have the accurate EMI, you can determine if you will be able to make regular repayments or not.

Why Apply for a Business Loan through MyMoneyMantra?

One of the best options to get a Business Loan is through MyMoneyMantra.

Here are some benefits of applying for a loan on MyMoneyMantra:

  • You have access to more than 90 financial institutions in one go, allowing you to compare various products.
  • There are over 40 million users of MyMoneyMantra across the country
  • You get the advantage of end-to-end services like document collection and verification as well as submission.
  • MyMoneyMantra tries to improve turnaround time with a system that functions 24x7
  • For any queries about loans and products, you can consult any of the 2500 relationship managers and other financial advisors available on MyMoneyMantra.
  • Our products and services have been honored with over 100 banking awards
  • MyMoneyMantra is accessible in over 500 cities across India.

Points to Consider While Opting for a Business Loan

If you have decided to apply for a Business Loan, here are a few factors that you need to consider:

  • The time in business to determine if the industry that you are currently working in will have any dips.
  • The income that you are generating with your business currently to understand the repayment capacity.
  • The cash flow available with the business
  • The rate of interest offered on the loan
  • The collateral that you will be able to provide, if needed
  • The current debt load on the business and the repayment capacity based on EMI payable on these loans.

Business Loan Offers

Get Kotak Mahindra Bank Business Loan up to Rs. 2 Crore online at interest rate starting from 16% p.a.

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Business Loan Eligibility FAQs

Can I get a loan even if I don't fulfil all the eligibility criteria?

Usually, banks require candidates to fulfil all the eligibility criteria. Depending upon your relationship with the bank, you can still get an approval with a higher rate of interest and higher collateral.

What is the difference between an Overdraft and a Working Capital?

The primary difference is that the rate of interest charged on the overdraft is higher. You get an overdraft against the current account or savings account while a working capital is a short term loan provided to increase cash flow.

What is the maximum tenure available on Business Loans?

This changes with each bank. However, you can get up to 25 years for repayment of Business Loans.

What collaterals can be provided for a Business Loan?

You can get loans against property, fixed deposits, or any other assets as per the requirement of the bank that you are applying for a loan with.

What is hypothecation of assets?

The bank values the existing assets of the business as well as assets purchased using the loan in case the need to be used in order to recover the loan provided.

How to check eligibility for a Business Loan?

You can check the eligibility for a loan by contacting the customer care of the bank or by visiting the branch. You also have tools like eligibility calculators that help determine if you are eligible for a loan. Most banks list the eligibility criteria on the website as well.

Is it possible to get an unsecured Business Loan?

If you have a high credit score and the business is generating profits, there are chances of getting an unsecured loan. Depending upon the nature of your business, you can also opt for loans that are backed by a credit guarantee.