Home Online Loans How to Calculate Business Loan Eligibility? Check Out These 7 Tips to Improve it

How to Calculate Business Loan Eligibility? Check Out These 7 Tips to Improve it

11 min read

A business loan is a widely used financing option that provides funding to help businesses sustain and perform their business operations smoothly. Businesses require funds for various needs, such as:

  • Expansion
  • Meet working capital requirements
  • Manage overhead costs
  • Upgrade equipment, etc.

Availing a business loan can help you fulfil these requirements easily. Generally, business loan lenders evaluate various factors before sanctioning a loan. This includes eligibility, total revenue, financial history and age of business, among others. 

However, with new businesses on the rise, business vintage can act as a hindering factor for getting a business loan approval. Fortunately, there are some strategies that can help you get business loan approval despite the age of your business. 

Read on to know these strategies and understand how to calculate business loan eligibility for getting a loan.

Why Does Business Vintage Matter?

The age of the business is indicative of a few important things, especially to lenders. For one, companies that have been in operation for several years can be perceived as stable. This is because they have a viable business model that has proven itself over the years. 

Secondly, business vintage helps lenders ascertain the risk of lending. Businesses in the nascent stages are riskier to lend to, which is why many have a minimum requirement. Naturally, failing to meet this mark could be problematic, and here are the ways to work around it. 

Define a Borrowing Plan and Purpose

Having a clear understanding of the purpose of the loan is the first step towards applying for a business loan. Your borrowing requirements vary based on the age of your business.  In case you are seeking a loan for a newer business, it is crucial to have a robust business plan and a convincing business profile. 

On the other hand, for a well-settled business, you must keep necessary documents, like income statements, performance reports, etc., handy for the lender to assess them. With the support of a strategic borrowing plan, the chances of getting your loan approval increase. 

Choose a Longer Loan Tenure

The tenure of your business loan can impact your loan approval. Here are some benefits of choosing a longer loan tenure: 

  • Smaller equated monthly instalments or EMIs
  • Increased timeline to repay the loan
  • Flexibility in prepayment or foreclosure

Opting for a longer loan tenure is a good idea if you have established your business recently and you are not able to manage larger EMI payments. This can save you from the financial burden without any stress on your monthly budget. 

Longer loan tenure options suit both established and new businesses. This way, the age of your business firm plays a significant role in your business loan eligibility. Moreover, learning how to calculate business loan eligibility helps too. With many eligibility calculators online, you can enter your business details and check if you are eligible to avail the business loan.

Research and Compare Different Options

To secure the best business loan, it is essential to conduct thorough research and compare various options from different lenders. Always keep in mind the age of your business when checking for loan offers. 

Here are some important aspects you need to consider when doing your research:

  • Eligibility criteria of the loan
  • Interest rates of the loan
  • Fees and other charges of the loan
  • Trustworthiness of the lender
  • Documents required for the loan

There are multiple loan options to choose from, and choosing the best one for you can take time and effort. Some of the options include Kreditbee Business Loan, IDFC First Bank loans, HDFC Bank Business Loans, Kotak Mahindra Bank loans, NeoGrowth Finance Business Loans, etc.

You need to understand how to calculate business loan eligibility, the requirements, and what is the best option according to the age of your business. Then, carefully evaluate these factors and make informed financial decisions for your business.

Maintain Adequate Bank Balance

The business’ finance accounts are a crucial element. A healthy bank balance is key to getting your loan approval quickly and easily. Having a positive revenue is especially important if your business is new; this increases the lender’s trust in your business. 

In addition, it shows that you have surplus funds, which can be used to repay the business loan. A healthy bank balance can have multiple benefits for a newer business as well as a settled business. Here are a few of them:

  • Shows financial stability in your business
  • Increases the trust of the lender in your business
  • Depicts the creditworthiness of your business

Keep Business Cash Flow Consistent

While applying for a business loan, it is necessary to show that you have sufficient inflow. This ensures that the business is running smoothly and the business is likely to repay the loan on time.

Demonstrating good business and profitability helps too, and may be required for new business to gain the trust of the lender. The lender incurs a greater risk by approving loans for businesses with inconsistent cash flow. On the other hand, the risk reduces if your cash flow is consistent.

Determine the Required Loan Amount

Assessing your business’s financial requirements and then determining precisely the amount they require is the initial step in obtaining a business loan. The loan amount is a critical factor the lender considers before approving your business loan. 

A greater risk is associated with a higher loan amount. In contrast, a comparatively lower risk is associated with a lower sanction. So, plan appropriately and borrow only as much as the business needs, to have the best chance at approval. 

Maintain Creditworthiness

To build the trust of the lender and show your creditworthiness, it is extremely important to maintain a good personal as well as business credit score. 

Your creditworthiness and past credit behaviour are depicted by a 3-digit CIBIL score that ranges between 300 and 900. Having a strong credit score can increase your chances of getting a business loan of your choice. It is essential for all types of businesses, irrespective of the age of the business. 

Considering these strategies, it is possible to increase the chances of getting your business loan, even if your business doesn’t pass the age criterion. Remember that lenders require you to demonstrate a stable business and responsible repayment behaviour to gain their trust. 

Hence, it is crucial to understand how to calculate business loan eligibility and work towards improving it for hassle-free loan approval.

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