Blog 7: What are the eligibilities to apply for unsecured business loan?

Blog 7: What are the eligibilities to apply for unsecured business loan?


After deciding upon business funding, the next natural step is to check the eligibility for unsecured business loans. While Fintech lenders offer business loans with relaxed criteria and absence of collateral cover, each applicant needs to check one’s eligibility. There is no one size fit all. The loan amount, the tenure and the interest rate vary from business to business. After the loan applicant submits the online loan application and the relevant documentation, the fintech lender evaluates the credit standing of the applicant and the small business on the following parameters:

  1. Turnover: Many NBFCs mandate a minimum turnover of Rs 40 lakhs. The lender is interested in the repayment capability of the borrower. Hence a healthy turnover is a key factor that determines the payment capacity of the small business.
  2. Operating Vintage: Many lenders insist on an operational period of at least 3 years. Since the business loan is dependent upon the business performance metrics, a minimum period of 3 years validates the viability and sustainability of the business model. In case of a period of shutdown during the 3-year business purposes, this is a negative. However, if the business unit has 2 years of audited financials and it meets the credit acceptance criteria of the lender, then a loan would be offered.
  3. GST compliance: This is critical as it shows the legal compliance on part of the business. Every lender would be willing to lend to a business loan that is legally sound and compliant with the law.
  4. Bank Statements: NBFCs insist on the submission of the bank statements of the last 6 months. This provides a trend of the turnover of the business and helps decide the amount of business loan to be sanctioned.
  5. Income tax Returns: NBFCs collect the IT returns filed in the individual capacity of the business owner as well of the business. It is important to separate the business accounts from the individual accounts. Ultimately, it is the promoters and the business owners who conduct the business. Hence, it is important that they are creditworthy.
  6. Age limit of the loan applicant: The loan applicant age group should range from 21 -65 years i.e. the working age group. This ensures that in case of default on the business loan, the income of the loan applicant or co-applicant is also present to augment the EMI repayment to the lender. This safeguards the lender.
  7. Credit Rating: The lender would evaluate the credit score of each individual applicant before processing the loan application. A good credit score will improve the chance of loan sanction. Defaults on payments, fraudulent activities, and huge outstanding dues will adversely impact the chance of obtaining business funding. Fintech lenders extend loans to applicants rejected by banks, provided one has not indulged in intentional malpractices.
  8. Crime background: If the loan applicant has been found guilty in a criminal act or been a suspect in criminal case, past or present, there is absolutely no chance of loan grant. Every lender would only be willing to extend loans to law-abiding citizens with a good track record as regards creditworthiness and legal compliance.
  9. Business Stability: This is a critical aspect for the approval of a business loan. Since the repayment is to be undertaken by the business, lenders lend to business units with a stable income, derived from legal business operations and reasonable profit margins. This especially applies to Fintech lenders, which do not require collateral cover and grant unsecured business loan solely business performance.

Thus the above eligibilities can be summed that applicants of business loans must ensure a minimum turnover, the minimum period of operations, profit making track record, legal compliance with GST and IT laws and a promising business model.


Categories: online business

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