Loans are a necessity in times when it comes to starting a new business or even when you’re planning to expand, or buy new equipment. It is not only required to buy physical entities but also for a wide purpose of activities.
Loans are a necessity in times when it comes to starting a new business or even when you’re planning to expand, or buy new equipment. It is not only required to buy physical entities but also for a wide purpose of activities. A business loan is a loan designed primarily for businesses. More often, businesses suffer because of the paucity of capital and business loan is one of the ways to shore up the finances. However, like all the other forms of loans, a business loan has a strict regime of approval and goes through quite a few steps.
There are myriad reasons why one might fail to acquire a business loan. Here are 8 factors that keep you from getting a business loan.
The Credit History
This is the primary pillar for any loan. Adverse credit history may play a spoilsport, no matter how good the other parameters be. Credit history will allow a creditor to have a look into your credibility. This will give them an idea of how capable you are of paying back the loan.
Stunted Cash Flow
Stunted or limited cash flow is another major concern for banks and creditors. If the major source of cash is something that does not arise confidence, then there are chances that your business loan proposal will fall flat. Creditors will not like the idea of lying in the lurch, because the cash flow dried up.
Absence of a business plan
Now, this seems to be a bit dicey, since even the best-laid plans fail, but an absence of a business plan is a sure recipe for disaster. Before you approach a creditor, the foremost thing that needs to be ready is a solid business plan. A business plan is an idea, quantified on paper. All the possible risks along with the exit plan need to be mentioned in the business plan. Creditors are fond of seeing areas where there are possibilities their money may be at risk or areas of high return.
This is one of the red flags for credit companies and individual creditors. Disorganised documentation often leads to lost credentials or the absence of important paperwork. While applying for a business loan, the individual must be able to produce all the business loan documents necessary for approval. Disorganised documentation is one of the prime reasons for the failure of getting a business loan.
This is one of the challenges new businesses face. Not enough time spent in a business is a negative when it comes to applying for a business loan. The experience gained by a business is considered to be one of the standard protection against bankruptcy.
A business is termed risky if the creditor or the credit company feels that the industry, of which the entity is a part, is risky. A high failure rate is considered to be not ideal for a business loan.
Most business loans come with collateral. This is used as a protection against the failure to return the loan. Not having enough collateral will go against you.
High debt utilisation
A business loan EMI calculator will give the business an idea of what to pay. It also provides the debt utilisation ratio of the business. If it’s too high, then the approval for the business loan fails.
What is the cibil score required for a business loan?
The CIBIL score for availing of a business loan is anywhere between 300-900. The minimum CIBIL score required for a business loan is 750; while the best CIBIL score is the one that is near 900.
Who can get a business loan?
All entities, self-employed and non-professionals can avail for a Business Loan, after clearing the required business loan eligibility criteria.
What are the documents required for business loans?
Few important documents to process your loan application includes ITR for the past two years, Aadhar card & PAN card, Business address proof and a Bank statement of last year.
Do I need a business plan to get a business loan?
NBFCs do ask you to submit a solid business plan that has all the details or the purpose of business loan and what are your plans of expansion.