By nature business is require lot of money whether it is a new or existing to grow. It is necessary for each individual business is having a cycle where the initial investments to be turned out to sale and by sale procedure we get profits. As a fundamental a business requires the funds from the initial step to final step of to receive profits. A successful business means to infuse the funds into business whenever it requires.
Generally loans to business entities are two method, one is secured facility and the another one is unsecured facility. Generally working capital Bank Finance will be provided by the banks upon taking a sufficient collateral, however another way, banks will be provide unsecured business loans to the borrower based on the eligibility criteria.
Generally working capital loans starts from Rs. 5 lakhs, and the max will be depend upon the proposal strength and the collateral coverage. Whereas Business loans will be starts from Rs. 2 lakhs and max will be capped as Rs. 45 lakhs based on the client risk profile. Since the business loans are by nature unsecured.
In a nut shell, when a entity applies business loan to a Bank/Financial Institute, to be ready with the following factors.
The factors which will affect your business loan eligibility and rate of interest are given below:
1. Business Model or Business Plan
A business model will help the bankers to understand about your business overview, it will give comfort on your business loan decision making. After business model, bank will calculate “as a entity what is the competitive advantage you are having with compare to the market”. A systematic business plan shows that you are serious about running and maintaining a profitable business.
2. Type of Business
Another common deciding factor that may affect your business loan by the bank/financial Institutions is your type of business. A “Business Type” is very crucial for In banks decision making. There are some businesses which are into speculative business, film production units, real estate contractors, video parlours and detective agencies etc., these kind of businesses banks generally do not provide any kind of loans, as these entities will carry higher default risk.
Banks always looks for the entities which are already well established in the market for at least 3-5 years and having minimum turnover of Rs. 1.50 Cr of annual turnover for last 3 years will have higher opportunity to get the business loans from banks.
3. Credit History
Unfortunately, if you are apply for a business and have a poor credit history or over-all credit rating score, it will negatively affect your business loan rate. In fact, you may have a hard time qualifying for a business loan with a bad credit history, Since most of the business loan by nature as a unsecured loans, banks will be in particular concentrate on the credit history of the entities and its promoters, it is suggested that before applying any business loans avail your credit history from CIBIL and apply, a good CIBIL Score can make you to get the interest rate benefit while processing of the business loan.
4. Length of Time in Business (Experience)
If you are having high business vintage, higher opportunities of getting unsecured business loans from the banks / financial institutions. Those whose businesses survive beyond the three year mark have a better chance of qualifying for a decent business loan rate. Lenders are reluctant to sponsor loans at decent rates to those who are just starting a new business or who have never owned and operated a business before.
5. Your Business Structure
Another factor that may determine the rate of your business loan is how your business is legally structured. For instance, a small business that is established as a sole proprietorship may not qualify for a decent loan rate whereas a business that is structured as a incorporated may have higher chances of qualify for the decent loan, depending upon other factors too.