Availing financing is usually a crucial step in a business’s growth journey, whether it is a startup or an established company. However, the Business Loan eligibility criteria for different business structures can differ. Understanding these key differences is crucial for entrepreneurs seeking to fund their businesses. They can do so using financial tools like a Business Loan eligibility calculator.
Business Loan eligibility criteria for startups
Startups often face unique challenges when applying for a Business Loan. Here are the primary factors lenders consider when reviewing a Business Loan application for a startup:
Limited financial history: Since startups usually lack a stable and extensive financial history, this often becomes a significant hurdle in the Loan application process. Lenders may have difficulty assessing the risk associated with new businesses.
Lenders also require proof of your business history to determine eligibility. You should have been engaged in the current business for a minimum of three years and should have an overall business experience of at least five years in order to be eligible for a Working Capital Loan.
Personal credit scores: For many startups, personal credit history may affect Loan eligibility more significantly than business credit history because the latter may be non-existent. Lenders often review the owner’s credit history, so entrepreneurs must maintain a strong personal credit score to improve their chances of securing favourable Loan terms.
Entrepreneurs can use Business Loan calculators in India to assess if their credit scores are good enough for favourable Business Loan terms.
Collateral requirements: Many lenders require startups to provide collateral, such as personal assets or business equipment, to mitigate the risk of lending to an unproven or uncertified entity. Entrepreneurs must be prepared to provide collateral or opt for Unsecured Loans that may have higher Interest Rates.
Business Loan eligibility criteria for established businesses
Established businesses benefit from a more favourable eligibility landscape for Business Loans than startups. Here are the factors lenders usually consider for established businesses:
Proven financial track records: Established businesses usually have several years of economic data to support their Loan applications. Lenders can review income data, balance sheets, and cash flow statements to assess the business’s repayment capacity.
Business credit history: Businesses with a solid credit history may secure larger Loan amounts and favourable terms. Lenders consider the business’s credit score, which reflects how efficiently it has managed debt in the past.
Simplified collateral requirements: While established businesses may still need to provide collateral, lenders might be more willing to offer Unsecured Loans based on their financial stability. Established organisations often have substantial assets that can be used to secure larger loans, reducing the risk for lenders.
Conclusion
The eligibility criteria for Business Loans are significantly different for startups and established businesses. Understanding these distinctions is crucial for entrepreneurs seeking funding for their enterprises. Utilising financial tools like Business Loan calculators can substantially help entrepreneurs streamline their Loan application procedures.
By knowing what lenders look for, entrepreneurs can prepare effectively, enhancing their chances of securing the funds they need for growth and success.
