In 2018, the Government of India earned total revenue of Rs. 11305.76 billion or about Rs. 11 Lakh Crore. It is an all-time high, and a large portion of that amount was collected from various businesses all across India.
The Indian economy relies mostly on its industrial sector. The large, medium and small scale industries contribute to 29.02% of the total GDP. The SMEs and MSMEs encompass 95% of the total industrial output of the country and add to 45% of the total manufacturing output.
However, despite such tremendous growth, the small and medium industries still suffer from a concurrent lack of funding. These businesses usually operate on a lower budget and do not enjoy a steady revenue stream throughout the year. It makes them prone to bankruptcy as the hidden costs involved in running a business can easily exceed their budgets.
Thankfully, a business finance from NBFCs has bridged the fiscal gap significantly in recent years. There are several organisations including NBFCs that offer these financial products at affordable interest rates and easy-to-meet eligibility criteria.
Businesses avail these loans to pay for the essentials like working capital, overhead expenses, inventory acquisition, etc. Business loans can also be utilised to finance a company’s growth.
There are several details that a business owner should consider before taking a business loan. Let’s take a look.
Monetary requirements –
One of the essential things a company should consider while applying for a business loan is its financial utilisation. The credit amount should match the exact need. Larger loan amount can increase the EMI and strain your company’s budget while a lower loan amount may not be adequate for the essentials.
After you gauge the amount you will need as a credit, you should create a repayment plan to pay off the debt. A repayment plan will aid to maintain your establishment’s budget and allow you to repay the debt as soon as possible. Lenders will also consider your application favourably if you show them a repayment strategy.
Credit score –
A credit score is a numerical representation of a person or business’ creditworthiness. It ranges from 300 to 900, and a score of 750 or higher is considered as the threshold forwarding a borrower’s creditworthiness.
Both your personal and your company’s credit score are 2 of the most essential business loan eligibility criteria. Financial experts recommend building a good credit score before you decide to apply for credit. Paying your bills in time, maintaining a FOIR of less than 30% can be considered as some what to do if your business’ credit score is low.
Accessibility to funds –
The availability of funds is another important thing you should consider before you apply for a business loan. Businesses often require funds at an urgent notice to pay for several unforeseen expenses. NBFCs offer business loan application approval within 24 hours along with minimum documentation. Such offers simplify the process required to get a loan and saves you time while applying. You only have to provide some necessary details online to check your pre-approved offer.
Eligibility criteria –
Ensure that you meet the lender’s eligibility criteria before you apply for a business loan. Not fulfilling the minimum requirement can cause rejection of your application and decrease your credit score.
Most financial institutions require only some easy-to-meet eligibility criteria. For example –
- Age – Lenders offer credit to applicants between 25 to 55 years of age.
- Business vintage – A business vintage of at least 3 years if preferred to avail a business loan.
- Income tax filing – You will have to present your business’ income tax return of at least the previous year to qualify for a credit.
The applicant will also have to submit some documents like KYC papers, business proof, and bank account statement for the last month, etc.
The above mentioned eligibility criteria may vary between lenders. However, organisations generally require only such simple requirements to qualify for a loan for SME.
Business loans are an ideal tool to finance the growth or to pay for the necessary monetary requirements of a company. The above-mentioned details are some of the most essential details you should consider when you apply for such a credit.
Author Bio:
Uday is a passionate blogger. He has expertise in writing finance articles. He have been serving society as a financial adviser. He loves keeping himself up-to-date with the news and happenings around. He is always open to learning and shares his experiences on his Greetings of the Day.
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