Credit · 5 min read
Business Loan Eligibility:
What Banks Check
Two businesses with the same turnover can get very different offers. Here is what lenders look at, and how to pick between a bank, an NBFC and a government-backed scheme.
Ravinder Pal Singh Ubeja ·
Lenders look at how long the business has run, whether its returns, GST filings and bank statements tell the same story, and the promoter's credit record. Fix inconsistencies before applying, and choose the lender to fit the business, not the other way round.
What lenders check
- Vintage. Usually at least two to three years of operation with filed returns.
- Turnover and profit. From ITRs and audited financials. Many unsecured programmes start around ₹40 to 50 lakh of annual turnover.
- Consistency. Turnover in GST returns, ITRs and bank credits should broadly agree. Large mismatches are the most common reason a viable file is priced badly.
- Banking conduct. Twelve months of current-account statements: regular credits, no cheque bounces, limits not permanently maxed out.
- Credit record. The promoter's personal CIBIL score and the company's commercial credit report.
Which kind of lender
- Public sector banks are often cheapest and offer government-backed schemes, but want complete documentation and take longer.
- Private banks move faster and suit established businesses with clean files.
- NBFCs are more flexible on documentation and younger businesses, and price for that flexibility.
Government-backed options
The CGTMSE guarantee scheme lets eligible micro and small enterprises borrow without collateral, with the government trust guaranteeing part of the loan. MUDRA loans serve smaller borrowers. Both have had their limits raised in recent budgets, so we check the current terms for your business.
If you own property
A loan against property usually costs far less and runs far longer than an unsecured business loan. For funding expansion it is often the better route.