A business loan or commercial loan is a borrowed sum obtained by a business from financial institutions for the purpose of their growth and expansion. Many established businesses and entrepreneurs opt for a business loan for funding various necessities of the business.

This loan acts as a helping hand for businesses that are in need of working capital. However, before applying for this loan, take a look at the business loan interest rates, documents required, eligibility criteria, and so on.

Documents Required for a Business Loan

Business loans enhance production and drive expansion for a business. However, before opting for a business loan, you have to submit several documents for verification of the application. Some of these important documents are:

  • Identity Proof (includes PAN card, Ration card, Aadhaar card, driving license, MAPIN card, etc.)
  • Address Proof (includes Aadhaar card, electricity bill, telephone bill, etc.)
  • Age Proof (PAN card, voter id card, passport)
  • Financial documents (comprises Income Tax Returns for last two years, Profit and Loss statements and balance sheet for the last two years, and for the last six months)

These are the significant documents you should keep handy to avoid the last-minute rush. However, before looking at the documents, you need to know the eligibility criteria.

Eligibility Criteria for a Business Loan

The following are the eligibility criteria required for a business loan:

  • The applicant must be an Indian citizen
  • The borrower must be a self-employed individual or self-employed non-professional
  • The age limit should be between 25 and 65 years
  • Business units like private limited companies, LLPs, and partnerships, can opt for a business loan
  • Must have a minimum experience of 3 years in the existing business and a minimum of 5 years of overall business experience
  • The applicant should have an income of at least Rs. 1.5 Lakhs per annum.

Factors Affecting Business Loan Eligibility

After going through the eligibility criteria of a business loan, let us take a look at the factors that affect eligibility:

  • Credit History

Your credit history is the very first factor that lenders will check to determine whether you are eligible for a business loan. Furthermore, the lender will understand your borrowing pattern through your credit history or credit score.

Taking a loan and repaying the same within the mentioned time helps increase your CIBIL score. On the contrary, if there is any delay while making a repayment, it will deduct the score immediately. Therefore, you should retain a proper credit score to become eligible for a business loan.

  • Business Performance

Business performance is the second factor that influences eligibility for a business loan. Lenders provide loans to successful business sectors as they expect credit repayment within the stipulated time.

The performance of your business is exhibited through the Income Tax Returns, bank statements, and balance sheet of your business. This is why any sort of error in the balance sheet can adversely affect your chances of getting a business loan.

  • Collateral

Being an unsecured credit, business loans are collateral-free. However, there are few lenders who will ask for security. If you offer collateral while taking a business loan, your eligibility for this loan will increase considerably. In general, business entities provide cash deposits or savings, inventory, and so on as collateral. Therefore, if you cannot clear the repayment, your lender will recover the entire loan amount out of the collateral.

  • Age of Business

Another factor that affects the eligibility criteria for a business loan is the age of your business. Generally, if your business is not more than two years old, it is quite possible that you will face a loan rejection. However, organisations that have been operating for several years are much more likely to qualify for this loan. The reason behind this is that they have updated Income Tax Returns, balance sheets, and bank statements to show their financial stability.

Apply for a Business Loan Online

The steps to apply for a business loan online are as follows:

Step 1: Visit the official website of a financial institution

Step 2: Navigate to the business loan section and check out the business loan offers

Step 3: Select the ‘Apply Now’ option

Step 4: Fill out the application form for a business loan with your personal, residential, and business information.

Step 5: Choose the best-suited loan offer for you

Step 6: Select your loan amount and tenure

Step 7: Upload copies of all required documents

Step 8: Submit the application form

After this, your application process for the business loan will be completed.

So, now that you have the information about the documents required for a business loan, you can easily apply for it. However, before availing of this loan, make sure that you check the business loan interest rates, its eligibility criteria, steps to apply, and so on.

Checklist of Documents You Will Need for a Business Loan

Contents In This Article