What Parameters Checked By Nbfc For Giving A Business Loan?

Startups are currently witnessing a favourable climate for their growth, especially after the advent of Startup India Campaign and the budget 2020-2021. 

Several financial platforms and schemes have come to aid entrepreneurs and firms in achieving their goals. Of all the numerous options available, business loans reign as the most favourable and flexible scheme. 

But getting a business loan with instant approval is not an easier task. A little mistake can cause rejection of your business loan application. Here are some of the parameters that are checked by NBFC and any financial platforms before sanctioning the loan application are listed below.

Business loans: A Glance

Business loans are financing provided by banks and NBFCs to assist enterprises in their business ventures.

Interest rate and tenure

The current interest rate for business loans in India is estimated to be around 13.5%. However, the interest rates vary from lender to lender. A leading NBFC platform, Fullerton India, provides business loans at interest rates ranging from 17% to 21%. The interest rates are dependent on factors such as location, stability, collaterals submitted, applicant’s credit history etc. They also provide flexible business loan applications online and upto Rs. 50 lakhs without collateral.

Applicants can choose a business plan best suited for them by comparing the interest rates and EMI amounts using a business loan EMI calculator. This easy to use and free calculators can provide the primary sieve to segregate a lender that entirely harmonizes with their requirements.

Parameters Verified By Nbfcs Before Sanctioning The Loan

Regardless of the loan amount or tenure following are the parameters checked before approving the loan.

1. Credit History

Credit scores are vital for NBFCs as these indicate the repayment capacity of the business and applicant towards the loan. The credit scores of both the individual and company are scrutinized before sanctioning the loan. A credit score of 700-750 is generally considered as an excellent personal score. It indicates a reduced risk factor. A CIBIL score of less than 680 is deemed to be high risk as the NBFC reviews the application for a potential of default or non-repayment.

2. Flow of cash

A low business cash flow indicates that the applicant takes care of the business expenses and amounts first more than their credits. An NBFC scrutinizes the financial statements of both the applicant and the business to reduce the potential risk involved in repayment.

In case you are witnessing a low cash flow, it can be improved through cash flow analysis, setting goals and having a well-synchronized payment policy.

3. Collateral

A suitable collateral property gives a better sense of security for NBFCs or any lenders. Thus applicants are advised to pledge real estate property, machinery etc. of high value as collateral. It can help the rejection margin as NBFCs will have a better sense of security on the applicant.

4. The capacity of the applicant

Every lender would like to sweep through every section that could convince them of the potential risk associated with the applicant. Thus NBFCs may request your ITR forms, financial statements to understand the credit and debts that the applicant might carry.

The NBFC then formulates the credit to debt ratio and decides whether the applicant qualifies for the business loan.

5. Documents

The following documents are required and scrutinized:

        ID Proof 
        PAN Card
        Voters ID card
        Driving Licence 
        Aadhar card
        Address proof
        Ration card
        Aadhar card
        Trade Licence
        Lease agreement
        Sales Tax certificate
        Income proof: ITR returns of the last six months to be submitted
        Financial documents
        Business ownership proof
        Audited financials of previous three years

Final thoughts

Business growth is highly dependent on the commitment and strategies that ensure success and continued growth. But always remember that before applying for the loan you must have to ensure that you have the ability to repay the loan in accurate time. Use the business loan calculator to know the EMI amount. 

With the right plan, lender and financial assistance through business loans, achieving goals can be closer in reality with business expansion and growth.

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