What determines business loan eligibility?
1. Business Turnover
Turnover provides an indication of the scale of business activity. However, turnover alone does not determine the amount a lender may approve.
2. Profitability
Profitability can help demonstrate whether the business generates sufficient earnings to manage additional debt. A high-turnover business with very low margins may have a different borrowing profile from a business with stronger profitability.
3. GST Returns
GST filings can provide information about reported sales and business activity. Depending on the lending product, GST information may form part of the eligibility assessment.
4. Income Tax Returns
ITR and financial statements can help establish reported income and the financial position of the business. The documentation required can vary depending on the lender and loan product.
5. Bank Statements
Bank statements can help demonstrate actual cash-flow patterns, business receipts, regular expenses and existing repayment commitments.
6. Credit History
Credit history can influence the assessment of previous borrowing and repayment behaviour. It is important to maintain timely repayment of existing credit facilities.
7. Existing Debt
Existing loans, EMIs and other financial commitments can affect the amount of additional borrowing a business can reasonably service.
8. Business Vintage
The length of time a business has been operating can also be relevant to certain lending programmes. Requirements vary between lenders.
9. Loan Purpose
The purpose of borrowing matters. Working capital, business expansion, machinery, inventory and other requirements may be financed through different types of facilities.
10. Repayment Capacity
Ultimately, the key question is whether the business can comfortably service the proposed debt. This is why turnover should be considered together with profitability and cash flow.