What is the Eligibility Criteria for Business Loans in India?

A business loan can be the solution for businesses looking to fund various activities like buying raw materials, meeting day-to-day expenses or paying utility bills. While applying for a loan is fairly straightforward, banks and financial institutions have an eligibility criterion for borrowers. 

Adequate financing is the lifeblood of MSMEs in India. However, research from the Ministry of Micro, Small and Medium Enterprises shows that around 70% of all businesses shut down after only the first year. Unfortunately, for many MSMEs, access to timely funds is a hugely limiting factor. 

In the following blog, we will look at the eligibility criteria and the documents required for the smooth disbursement of these loans.

Eligibility Criteria  

Most banks and financial institutions provide tailor-made business loans to eligible applicants. The amount disbursed depends on the nature and the size of the businesses. How can businesses qualify for these loans? To know more, read on. 

• Age factor

The borrower must be between the ages of 21 – 65 to be eligible for a business loan. While this may be generally the case, you should check with your lender about their specific age requirements set by them. 

• Legal registration of business

Businesses must be formally registered with the Government of India.  Types of registration can include individual, sole proprietorships, partnership firms, private companies, and others.

• Minimum business turnover per annum

Banks and financial institutions expect borrowers to have a minimum annual turnover of ₹25 lacs to qualify for a business loan. However, some banks may fix this limit at ₹40 lacs as well. Hence, it is important to study the eligibility criteria of the lenders thoroughly before approaching them for loans.

• Experience of borrowers

Borrowers should have at least two years of business experience in their current location to be eligible for a business loan. Some banks may consider the overall business experience of the borrowers (irrespective of the location). In some other cases, banks may require borrowers to have completed at least three years of operations in the current location

• Profitability Factor

A business should have generated profit for a minimum of 1 year to become eligible for business loans. Its financials should be strong and creditworthy enough to qualify for these loans.

• Income factor

All the earnings of borrowers should either originate from their businesses or their investments. Banks look closely at the source of income of borrowers before granting them loans for the day-to-day running of their businesses.

• Credit score

The CIBIL score or the creditworthiness score of a business owner should be 700 and above to qualify for a business loan. In some cases, banks/financial institutions also grant loans to borrowers who have a minimum credit score of 650.

• Repayment capacity

Credit score and the repayment capacity are two important factors that banks and financial institutions check about a borrower. Borrowers need to submit their tax returns, income statements, balance sheets, and other important business documents to prove their financial health and repayment capacity to the banks.

• Other factors

Banks also check the financial history of borrowers to know if there have been any defaulted payments in the past. Borrowers need to have a clean financial record to qualify for business loans. Also, if they are owners of any type of property (residential, commercial, warehouses, etc.), they stand a better chance of getting business loans.

Documents Required for Business Loans

Borrowers need to submit all these documents along with their business loan forms to process their loan applications.

• PAN Card (individuals, firms and companies)
• Valid ID Card (can be one of these – AADHAR card, passport, Voter’s ID, PAN card, driving license)
• Valid address proof (can be one of these – AADHAR card, passport, Voter’s ID, driving license)
• The last six months’ bank statement of the business
• Latest Income Tax Returns
• CA audited/certified copies of the Income Statement and Balance Sheet for the last two years
• Proof to show continuation of business (can be one of these – income tax returns, trade license, establishment certificate or sales tax certificate)
• Other important documents that are key to the nature of the business (declaration of  sole proprietorship, partnership deed, director-certified copies of Memorandum of Understanding and Articles of Association,  and the like)

Important note – These are the usual documents that are required to be submitted along with the application for a business loan. However, it is important for borrowers to check with their specific lenders if there are any additional documents required to ensure that their application doesn’t get rejected.

Bottom Line

A business loan can help businesses carry out their daily operations, buy raw materials and equipment, and plan for further business expansion. Hence, borrowers should ensure that they make full use of such loans by knowing the full details about eligibility and the documents required at the time of application.

Like seeking a business loan, selecting the right lender becomes as important as the decision to be financed. TallyCapital, available exclusively to TallyPrime customers, stands out as a prime choice for businesses seeking not just funds, but a partner in growth.

Here are several reasons why TallyCapital could be the best option for your business loan needs: 

Quick procedure

By taking advantage of the already established connection with Tally, the loan application procedure is considerably speeded up due to the decrease in wait time.

Collateral-free loans

We acknowledge the obstacles faced by young and new companies in raising capital, therefore the loans through our lending partners are collateral-free. 

Competitive interest rates

Through negotiations with our lending partners, we make sure that our interests remain one of the lowest in the market, thereby providing a more convenient and affordable financing structure for our customers.

Flexible funding options

Through our lending partners, we provide lending from ₹50,000 to ₹75 lakhs to businesses of all sizes which allows them to get funds necessary for growth and success.