Applying for a Business Loan involves more than just submitting documents. Lenders carefully assess whether your business can responsibly handle debt and repay on time. Two key metrics that stand out in this process are your credit score both personal and professional and cash flow. But what matters more when it comes to eligibility? Let us break down both factors and understand how they influence your chances of securing a Business Loan.
What is a credit score? Why does it matter?
Your personal and business credit score is a numerical representation of your creditworthiness. A credit score is of 750 and above is the most ideal. It depends on your credit history, repayment history of Loans and Credit Card dues.
Why do lenders focus on your credit score?
- One of the basic Business Loan requirements is a personal and business credit score of 750 and above.
- It signals a low risk to the lender, indicating that you have a history of making timely repayments.
- A decent credit score also helps you negotiate better interest rates, higher Loan amounts, and faster disbursals.
What is business cash flow? Why is it equally important?
Cash flow refers to the net amount of cash being transferred into and out of your business. It is a real-time indicator of your company’s ability to generate income and cover operating expenses, including Loan repayments.
Why do lenders care?
- Lenders assess whether your monthly cash inflow can support the proposed EMI.
- Consistent, positive cash flow reflects a stable business model.
- Businesses with strong cash flow are seen as lower risk, even if the credit score is average.
Business Loan eligibility criteria
Most lenders evaluate both credit score and cash flow while assessing your Loan application. Here is what they generally require determining your Business Loan eligibility:
- Applicant should be no less than 22 years at the time of application and 65 years at the time of final Loan maturity.
- Minimum 3 years of operation with stable income, and the individuals involved in the business should have 5 years of experience.
- Documented income profit from the past two years and a minimum turnover of Rs. 20 Lakhs.
How to improve your Loan eligibility?
To strengthen your personal and business credit scores
- Pay EMIs and Credit Card bills before the due date.
- Avoid multiple Loan inquiries within a short period.
- Regularly monitor your credit report and dispute errors.
To strengthen cash flow
- Be mindful of expenses and reduce overheads.
- Ensure all revenue is traceable via Bank Accounts.
- File regular ITRs and maintain updated books of accounts.
Conclusion
When applying for a Business Loan, the most effective move is not just to choose between a high credit score and strong cash flow, but to excel at both. A solid credit score shows that you are trustworthy. Healthy cash flow indicates that you can manage repayments effectively. Together, they increase your chances of securing higher Loan amounts with better terms.
