A
business loan can help fund daily operations, growth plans, or asset purchases
for new or established businesses. Lenders assess eligibility based on business
age, credit score, financials, and documentation. Strong credit history, stable
income, and proper documentation increase your chances of loan approval.
Understanding these requirements helps you prepare effectively for a business
loan and avoid rejections. This article explains the key criteria Indian
lenders use to evaluate business loan applicants.
1.
Business Type and Vintage
Most
lenders require the business to be operational for at least 1 to 3 years. A
running business with a proven track record offers assurance of repayment
compared to a new ventures. While start–ups
may still apply
for business loan through special government schemes or
startup-focused lenders, traditional institutions prefer stable businesses with
consistent revenues and loyal customers. High-risk sectors such as speculative
trading or highly seasonal industries may face additional scrutiny or be
excluded altogether.
2.
Age of the Applicant
The
age of the borrower, whether an individual or a proprietor, is another
criterion. Typically:
● The minimum age is 21 years at the time of application.
● The maximum age is generally 65 years at loan maturity.
This
ensures the borrower is legally eligible to enter a financial contract and has
sufficient working years left to fulfil the repayment obligations.
3.
Credit Score and Credit History
Creditworthiness
is another important factor in business loan evaluation. Lenders usually check
both:
● The personal credit score of the business owner(s), especially for
proprietorships and partnerships.
● The business credit report, if applicable (e.g., from CIBIL or CRIF
High Mark for businesses).
A
credit score of 700 or above is generally preferred, but even slightly lower
scores could be considered if the business performance is strong. Delays in
existing loans or high credit utilisation may negatively affect eligibility.
4.
Business Turnover and Profitability
Lenders
evaluate the business’ financial performance to gauge its repayment ability.
Typically, the following parameters are scrutinised:
● Minimum turnover requirement (varies by lender, often ₹10 lakh to ₹1
crore per year).
● Stable profit margins or positive cash flows.
● Recent audited financial statements, bank statements, and income tax
returns.
5.
Type of Business Entity
The
legal structure of the business also matters:
● Sole proprietors and partnerships may need to provide personal
guarantees.
● LLPs, Private Limited Companies, or Public Limited Companies must
comply with documentation requirements like PAN, GST, registration
certificates, etc.
● Registered businesses with a legal identity are more likely to be
considered favorably due to regulatory transparency.
6.
Existing Liabilities
Lenders
also assess your debt-to-income (DTI) ratio or current repayment obligations.
An existing high loan could limit your eligibility for a new loan, even if
other criteria are met. They may also check for the following:
● Outstanding EMIs or bounced cheques
● Unpaid taxes or statutory dues
● Legal disputes involving the business
These
can affect both approval and loan terms, like interest rate or repayment
tenure.
7.
Collateral (for Secured Loans)
For
secured business loans, eligibility depends on having valuable assets to offer
as collateral. This can include:
● Commercial property
● Equipment or machinery
● Inventory or receivables
Lenders
may offer higher loan amounts and lower interest rates when backed by
collateral. However, many NBFCs and fintech lenders also provide unsecured
business loans, subject to stronger financial metrics.
8.
Industry Risk and Market Conditions
Lenders
assess the risk level of your industry before approving a loan, which can
influence your estimated EMIs. Sectors such as hospitality, real estate, or
entertainment may be seen as higher risk, particularly in volatile markets. As
a result, loan approval can be harder or come with stricter terms. Still, a
strong business plan and good market standing can boost your eligibility and
improve repayment terms. To estimate how loan eligibility factors affect your
repayments, you can use a business loan EMI calculator for better
planning.
9.
Documentation and KYC Compliance
Eligibility
is not just about financials; complete and accurate documentation is a must.
Commonly required documents include:
● PAN and Aadhaar
● GST registration certificate
● Business proof (Shop Act, Udyam registration, etc.)
● Income tax returns (usually last 2–3 years)
● Bank statements (typically last 6–12 months)
● Audited financials and P&L statement
Failure
to provide valid documents can lead to rejection of loans.
Conclusion
Being
eligible for a business loan goes beyond just meeting minimum income or age
criteria. It involves a comprehensive assessment of your business’s financial
health, operational stability, repayment capacity, and credit history. By
understanding and preparing for these eligibility parameters, you are not only
increasing your chances of approval but also gaining access to better terms,
such as lower interest rates, flexible repayment, and higher loan amounts. For
any business, borrowing is not just about accessing capital; it is about
leveraging for growth, stability, and long-term success.
