The business environment of India has been rapidly changing due to the digital dynamics, changing the way businesses are operating. Nowadays, to keep up with the trends and expectations of the customers, businesses have started taking loans to renovate their business space, expand or start a new project. However, with such huge loan amounts, how can businesses improve loan eligibility, business credit score?
In this blog, we will be exploring the loan approval tips and also the various methods in which businesses and entrepreneurs can improve loan eligibility and business credit score.
Ways to Improve Your Business Loan Eligibility
To improve your business eligibility for a business loan, you will need to focus not only on building your business credit score, but you also have to focus on making sure that your finances and monthly expenses are not affected while creating a sufficient business plan. This also includes paying your bills on time, but also working on paying off debt, keeping your financial records transparent and organised, and showing your own potential for profitability and repayment to the lender while having a reasonably good business credit score. It really helps lenders get a more accurate assessment of the health of your business once you show the separate sheets of your personal and business finances. Here are some things that you could do to improve loan eligibility:
Improve your credit and finances:
- Pay your bills on time: To have a clean and clear record of finances, maintain a good personal and business credit score by paying off all debts, including credit card debts and EMIs.
- Reduce existing debt: You can start by paying off the other loans before applying to lower your debt-to-income ratio and also improve your loan eligibility.
- Minimise the cheque bounces: Make sure that your business bank account has no bounced cheques, as this can lead to immediate rejection.
- Separate finances: It is always advisable to keep your personal and business bank accounts separate to make it easier for lenders to assess your business’s performance.
- Recover Outstanding payments: If you have lent money to someone, it is advisable to collect all the payments owed to you to put your business in the best financial position before applying for a loan.
Organise and Present your financials:
- Maintain up-to-date records: You can have the recent and organised financial documents ready with you, which should also include GST and ITR filings, P&L statements and balance sheets.
- Keep bank statements ready: When you go for a loan application, the lenders will go through and review your bank statements to analyse cash flow, so you should at least have six to twelve months’ statements ready.
- Document all transactions: You should always make sure that you have clear records of all sales, expenses and investments to show steady growth.
Create a strong business plan:
- Develop a comprehensive plan: For the new businesses or for any loan application, a detailed business plan is important for demonstrating foresight and a strategy for success.
- Include key details: Your business plan should include and outline your company’s mission, the problem you solve, your marketing strategy and evidence of market demand.
- Show repayment ability: When you make your business plan or proposal, the plan must also show how the loan will be used and demonstrate your ability to repay the loan over time.
Some other strategies you can apply to improve loan eligibility:
- Use a business loan eligibility calculator: You can check the needed loan amount to avoid over-application and see if you meet all the criteria.
- Add a co-applicant: If you can see that your personal finances aren’t strong enough, then you can add a co-applicant with good financial credentials to help in the application and approval of the loan.
- Build a stable revenue stream: Remember, you always have a stable and steady income and expense statement of your business, as when the lenders check or go through your financial records, it will be seen as a risk by lenders.
Conclusion
Businesses can improve loan eligibility by maintaining timely payment of all debts and loan amounts, which will help them have a better business credit score. With all the loan approval tips given above, you can manage your personal and business finances in a better way. With a high business credit score, you improve loan eligibility of your business and also create a good and reliable impression with your lenders.
