5 Major Factors That Can Affect Your Business Loan Eligibility

When looking for a business loan, it’s important to understand the factors that can affect your eligibility. Each lender has different standards and criteria, but some general factors can impact your chances of getting approved. Your credit score is one of the most important factors in determining your business loan eligibility. Lenders will pull your score to assess your risk level and ability to repay the loan. A higher score indicates a lower risk, and you’re more likely to be approved for a loan with a good credit score. The amount of time you’ve been in business also impacts your eligibility. Lenders typically want to see at least two years of financial history before approving a loan. 

If you have a shorter track record, you may still be able to get a loan, but you may need to provide additional documentation or collateral. Your business type can also be a factor in your business loan eligibility. Some businesses are considered higher risk than others, and lenders may be hesitant to give business loan interest rate in certain industries. If your business is considered high-risk, you may need to find a speciality lender willing to work with you. Your revenue and cash flow are also important considerations for lenders. They want to see that your business is generating enough money to cover the loan payments and still have room for growth. 

5 Major Factors that can affect Your Business Loan Eligibility

  • Business plan

A business plan describes how a business will achieve its goals. If you are a new entrepreneur looking to start up a business or an existing one looking to expand your company, you will need to create a plan that can be shown to banks and NBFCs to secure the necessary funding. A strong business plan usually leads to a faster run. To generate a strong business plan, you need to be able to explain the purpose of the loan, the vision, and other factors that are relevant to your business. 

  • Credit Score

Lenders will often use your credit score to determine whether or not you’re a good candidate for a loan. A high credit score means you’re a low-risk borrower, which makes you more likely to be approved for a loan. On the other hand, a low credit score may make it more difficult to get approved for a loan. Ensure you keep up with your payments on any existing loans. A good credit history always facilitates the approval of a new business loan. Timely payment of dues, transparent transactions, and invoicing every purchase with dealers can help you build a good credit history. Small business owners prefer private NBFCs with low credit scores since they offer ease & speed of funding to their companies.

  • Cash Flow

Ensure you have accurate financial statements. Lenders want your revenue, expenses, and profit/loss for the past year. If your records are inaccurate or incomplete, it could hurt your chances of getting a loan. Keep track of your accounts receivable. This is the money that customers owe you for goods or services they’ve received but haven’t yet paid for. The faster you can collect these invoices, the better off your cash flow will be. Manage if you have too much inventory. It ties up cash that could be used elsewhere in the business. On the other hand, if you don’t have enough inventories, you could miss out on sales opportunities. 

  • Collateral 

Lenders will always consider the collateral you can offer up against the loan. Collateral is any asset used to secure the loan, such as real estate, equipment, inventory, or accounts receivable. The more collateral you have to offer, the greater your chances of securing finances. If you have a strong credit history and a good credit score, you’ll be viewed as a lower-risk borrower and more likely to obtain financing. If you have poor credit or no credit history, it may be more difficult to qualify for a loan. Lenders will also want evidence of your financial stability and ability to repay the loan. This means providing documentation of your revenue and profit margins and any other financial statements showing how your business is doing. Demonstrating a strong financial position will increase your chances of securing financing.

  • Industry Experience

Startups are considered high risk because they have no track record and are likelier to fail than established businesses. Some industries are considered high-risk due to their volatile nature or higher likelihood of defaulting on loans. These industries include Energy, Commodities, Real estate, Technology, Retail, Biotech and Pharmaceuticals. Working in the industry gives you first-hand experience in the working world. It helps you to understand the sector you wish to enter, learn new skills and develop existing ones. It also gives you an insight into the culture of different workplaces and how they operate. 


Lenders generally want a strong credit score, indicating that you have a history of paying your debts on time. A low credit score can make it more difficult to qualify for a business loan or you may be required to pay a higher interest rate. Lenders will want to see that your business is financially stable and can repay the loan. This includes reviewing your business’s income and expenses and its assets and liabilities. A business with strong financials is more likely to be approved for a loan. The type of busins you operate can also impact your business loan eligibility. Some businesses, such as those in high-risk industries or those with a short operating history, may be considered less desirable to lenders. 

Business loan interest rate is typically lower than personal loans because the loan is used for business purposes. You must provide additional collateral or have a co-signer to increase your approval chances. The purpose of the business loan can also affect your eligibility. 

Lenders will consider whether the loan is being used for a purpose likely to result in a positive return on investment. A loan used to purchase inventory or equipment may be more likely to be approved than a loan used for operating expenses. The lender’s policies and procedures can impact your loan eligibility. Some lenders in India may have specific requirements or preferences regarding the types of businesses they are willing to lend to, the terms they offer, or the collateral they require.

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