Business loans help you unlock financial opportunities and drive growth by infusing much-needed capital. Today, they are one of the most accessible ways to finance your business. You can apply for an instant loan online and get your application approved quickly with minimal documentation and zero paperwork.
But before you go ahead and apply, you should know your lender’s eligibility criteria. If you’re wondering, “How much loan can I get for my business?” the answer lies in your eligibility. The most important factor determining your application’s status is your business’s revenue.
In this article, we will explain all the business loan requirements you must fulfil to secure funding and how you can get a business loan even if your revenue is low. So, let’s dive in!
The purpose of business loans
A business loan is a business funding option that helps you finance your business needs in the short and medium terms. Businesses can leverage business loans for various purposes, including procuring new technology, starting a new project, expanding operations, or ensuring cash flow. Based on the type of business you own or the purpose of the loan, there are various types of business loans available, including-
1. MSME Loans – This business funding option caters to small and medium-sized businesses.
2. Machinery Loans– These loans allow you to procure the latest equipment for your business.
3. Working Capital Loans– This business loan provides for day-to-day cash flow requirements.
How much revenue is required for a business loan?
To qualify for a business loan, your business and you as a business owner must meet specific criteria.
Most lenders mandate that you must be above 21 years of age when you apply and below 65 by the time of repayment. You should also have a credit score of at least 750.
The revenue requirement for business funding varies from lender to lender. However, most lenders look at whether you have a steady revenue annually. Factors such as previous loans, stable business location, and profitability are also considered. This is how lenders determine your creditworthiness.
Factors influencing revenue requirements
While revenue requirements depend on the lender and are subject to change based on the business applying for funds, understanding factors that influence revenue requirements will help determine if you qualify for a business loan. Lenders look at various aspects of your business to determine your eligibility for business funding, some of which are listed below.
#1 Business type and industry
The industry that your business belongs to and the type of business influences its revenue and growth potential. Lenders prefer industries with higher growth potential as they are highly likely to repay their loans.
#2 Age of the business
The age of your business tells the lender two things- financial security and position in the growth cycle. The older your business is, the more financially sound it will likely be. The age of your business also points towards the stage in its growth cycle. Actively growing businesses are more likely to secure business loans.
#3 Income stability and profitability
Having a steady stream of income increases your chances of availing funding. If financial records show that your business has been profitable for a few years, lenders will likely provide you with a loan.
#4 Loan purpose
Lenders will verify the business activity towards which the loan funding will go. If the purpose of your loan is to fund revenue-generating activities such as a new project or expanding operations, this incentivizes lenders to provide you with business funding. Your chances of securing a loan may decrease if the financing is to go toward non-revenue-generating activities such as debt consolidation.
#5 Guarantee
As a business owner, lenders will consider your credit score before processing a loan request. Providing your lender with collateral and personal guarantees assures lenders about your ability to repay the loan, thereby increasing your chances.
Can you get a business loan even with low revenue?
If your business is in its early stages or you are going through a phase where your revenue has plummeted, acquiring business funds and meeting your lender’s eligibility criteria can be challenging. But this doesn’t mean that you cannot get a business loan. However, you can use the following tips to ensure quick approval and disbursal.
#1 Prepare a detailed business plan
Before approaching a lender, prepare a detailed business plan outlining your growth projections for the next few years. Doing so will help reassure the lenders about your creditworthiness, and they will be more likely to sanction your business loan at a preferential interest rate.
#2 Prepare your paperwork in advance
When you apply for a business loan, prepare these documents in advance. The lenders use these documents to verify your credibility as a business. Be careful to produce all the latest documents and avoid submitting any contradictory or incorrect information.
1. KYC Documents – Your ID and address proof, a copy of your Aadhar, and your PAN card.
2. Proof of Business – Business registration certificate, GST registration, trade license, shareholders’ agreement, or sole proprietorship declaration.
3. Proof of Income – Financial documents for the last two years- including Income Tax Returns filed, balance sheets, profit-loss statements, audited financial and tax audit reports.
4. Bank Documents – Bank and GST statements for the last six months.
#3 Build your credit score
Lenders prefer applicants with high CIBIL scores. This is because a high credit score means that you are likely to repay the loan on time. Since your credit score is a reflection of your repayment record, your lender will consider giving you a loan even if your business has a low revenue.
A credit score of 750 and above is ideal. If you have a low or non-existent credit score, wait for some time and build it up. You can do this by paying off existing loans and credit card dues, taking a secured loan first and repaying it timely, maintaining a healthy credit mix, and regularly reviewing your credit report.
In conclusion
Your business revenue determines your business funding. But, even if your revenue does not meet your lender’s eligibility criteria, you can secure a business loan by improving your credit score and providing your lender with a detailed business plan.
Looking for business finance? Tata Capital is here for you. You can use our business loans for multiple purposes, such as improving your cash flow, expanding your business, investing in new technology, buying the latest equipment, and much more. We offer attractive business loan interest rates and flexible EMI options, and you can plan your repayment journey with our handy business loan EMI calculator. Visit the Tata Capital website to learn more and apply online.
03 July 2023
6 mins read
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