Do you have a startup idea in your mind and soon you want to start the business? If this is the case then the other thing that would strike your mind is from where can I find the funds to start the business? And am I eligible to get a business loan? These are the normal questions and are highly important because lenders do consider the eligibility factor, however, the eligibility criteria of every bank are different. A business loan is a loan which is borrowed specifically for the business purposes which could be to buy an asset, hire more resources or expand the business. The borrower is ought to repay the loan amount inclusive of interest amount.
Eligibility criteria for Business loan
Every bank has different eligibility criteria but this is the general which is followed by most of the lenders:-
- Age Limit: The applicant should be min 21 years & max. 65 years.
- Income: Business should be profit-making at least for the past 2 years.
- Turnover: ₹150,000 p.a. should be the minimum annual income.
- Co-applicants: This is optional to the applicant, not mandatory in case of business loan.
- Credit score: Above 700
All the above-mentioned factors are important but credit score plays an important role when a person applies for an unsecured loan and business loan is an unsecured loan.
How does credit score or CIBIL score affect your loan application?
A credit score is a numerical representation depicting credit worthiness of a borrower. If a borrower has a credit score above 700 then it is easy for him/her to get a loan, whereas if a borrower has a credit score which is less than 650 then he/she might face issues in availing the loan. If you think that your credit score is not improving then there could be main factors behind it like your credit history, credit utilisation ratio, hard inquiries on PAN card, and repayments made. If a self-employed professional like CA or engineer or doctor then your personal credit score is considered but if you are applying as an entity, be it a Partnership, Limited Liability Partnership, Private Limited, or closely held Limited company then your business credit score is considered.
How is CIBIL score calculates?
Here are the factors which affect your CIBIL score or credit score:-
- Payment history: If you have taken a loan before also and you have made late payments of EMI then it has a negative impact on the credit score.
- Credit mix: Securing a balance between secured and unsecured credit is an important factor. If you have taken a personal loan and using a credit card then it will have a negative impact on the score.
- Multiple enquiries: If a person has made too many hard inquiries will impact the credit score in a negative way. It can adversely impact your credit score.
- High credit utilisation: If a person has a high credit utilisation then it has a negative impact on the credit score because it indicates rising debt burden over time.
How to improve the credit score if it does not match the eligibility criteria?
- Make payments on time: Discipline is the most important factor when you think of improving your credit score. You need to make sure that you make all the credit card payments on time. You can set reminders or use mobile apps to set reminders so that you don’t miss on the last date.
- Credit utilisation
As a rule of thumb, avail one debt at a time. The more you apply for loan higher are the chances that your credit score will go down. In an idle case, you should pay one debt and take another debt. To boost the credit score you must repay the loan successfully.
- Don’t go beyond your limit: Look for your needs, if you really need a debt then only avail it from the lender. Before applying for a loan always dig up your savings, if you don’t have much savings which can fulfil your financial need then you should apply for credit.
- Look at your co-applicants account: To improve your credit score make sure that your co-applicant pay the credit balance on time.
- Monitor your credit report: Always keep a check on your credit report, do not only check the report only when you need to take a debt. If you keep checking the report in between and you see that your credit score is low then you can start working on it from then and can save time immensely.
Conclusion: To be in the good books of lender it is suggested to maintain a good credit score. Maintaining a good score is not rocket science all you need is a discipline in your payments.