For small & medium-sized businesses, applying for a business loan can be challenging. A business owner or promoter often has to devote a large amount of time and effort to this process. You can, however, get a business loan in India with a systematic approach and carefully drafted application and boost your business loan eligibility.
Make sure your credit score is healthy.
Lenders and banks report to the credit bureaus information about the amount of debt you take on and the amount you repay, which you apply to calculate a credit score. As a result, a healthy credit rating becomes a prerequisite for applying for a loan anywhere since lenders can easily access it once they know your business loan eligibility.
You should have a credit score of 685 or higher if you wish to get a loan easily. You increase your credit score by paying your installments and credit card bills on time, ensuring you don’t use more than 30% of the available credit, and not closing old accounts.
The Debt-earnings ratio should be as low as possible.
Lending institutions set a debt-to-earnings ratio that an individual can comfortably afford to pay back. To put it simply, the amount of debt you are allowed cannot exceed a specific percentage of your monthly income. According to most experts, the debt-to-income ratio should be less than 36%. Prior to applying for a personal loan, pay off any credit card debts and other liabilities as much as you can.
Include all income sources
You must make a certain percentage of your earnings for successful loan qualification using a business loan EMI calculator. If you increase your income, you may qualify for a loan. If you have other sources of income besides your primary income, make sure to file your income tax return and include them all. This boosts your ability to pay and enhances your business loan eligibility.
Consider a long-term contract.
You can take out loans for personal use for short periods like one year or three years or longer periods like three to five years. A good practice is to choose longer terms at the time of application. The longer the repayment period, the smaller the monthly payments will be. Due to this, the monthly debt-earnings ratio is less impacted, which reduces the payment burden.
If you are a parent or a spouse, you can apply for a joint loan.
Your creditworthiness can be increased in this way as well. The incomes of two borrowers are combined when they apply for a joint loan, and they determine their creditworthiness with a business loan EMI calculator. It is even better to apply with your children since loans are granted more efficiently to young people, who will have many more years to earn before retiring.
You should apply for multiple loans in one go.
Credit bureaus also record how many loan applications a person has made in the recent past, regardless of whether or not they were approved. This affects the score on your credit report, resulting in the institution not extending you a loan. By reading and understanding the eligibility criteria of institutions, you can prevent this from happening. Aim to apply only to places where you feel you meet the requirements.
Ensure a positive cash flow
A positive cash flow is one of the key metrics lenders use to evaluate your organization’s financial health. Lenders conclude that borrowers who have a positive cash flow are more likely to make timely payments in the future.
Delinquency, also known as late payments, leaves an indelible mark on your credit report for up to seven years after the initial delinquency. You end up damaging your credit scores if you do this, later impacting your chances of obtaining a loan.