8 Factors That Keep You From Getting A Small Business Loan - Eligibility, Process & more

. 7 min read
8 Factors That Keep You From Getting A Small Business Loan - Eligibility, Process & more

What is Business Loan?

Entrepreneurship is the new craze in an age of growth and creativity, and India is not far away. Business, especially among young entrepreneurs, is very fashionable and rapidly increasing. As a result, loans are required to invest in a company and its expansion! Business loans are a fairly common occurrence, especially for small & medium-sized businesses.

Most banks in India lend to corporate firms, public limited companies, etc. Thus, companies may be financed up to the approved sum through loans, and although the characteristics of all such loans are very similar, they vary in terms of interest rates, maturity, and other terms through banks and NBFCs.

Business Loan process

If you obtain a loan for a new venture from a bank or insurer, you may receive a lump sum amount that you may repay over a specified time in the form of EMIs, at a set or floating interest rate. There is no minimum loan sum requirement, and the permissible loan amount is up to Rs. 1 crore, based on the business's needs. The repayment period is between 12 months to 5 years. In certain instances, the maturity period can be extended at the lender's absolute discretion.

Following the approval of your loan application or loan, the bank will deposit the appropriate loan sum into your bank account. Loan approval and disbursement times can differ by lender.

However, business loans may be tough to obtain. This article will help you understand what is a business loan, business loans eligibility, Business loans process, and identify the eight ways that might help you get a small business loan.

1. Poor Credit Rating

Credit rating is a method of determining a debtor's creditworthiness. A credit reporting firm such as CRISIL or ICRA evaluates the debtor's ability to repay the loan sum, which is typically dependent on personal or home loans, credit card payments, and so on.

Borrowers with a good credit score may normally apply for a loan at their nearest bank. Loans for borrowers with poor credit ratings are typically made by an Automated Clearing House (ACH) or Merchant Cash Advance (MCA). Bear in mind that you have to pay a high rate for an ACH or Merchant Cash advance regardless of your credit score.

2. Cash flow Status

Essentially, banks do due diligence on a business's financial stability before lending to it, analysing the likelihood of turnaround or default categorically. Loans are heavily reliant on the business's cash balance statements.

Indeed, businesses must detail how they expect to use the loan proceeds and how they intend to obtain revenue from their company to repay the loan.

3. Business Operating Time

A start-up is described as a company that has been in operation for less than two years. Generally, start-ups are ineligible for conventional bank loans. Usually, banks expect companies to be operating for two years before lending to them. The more your business has been in operation, the more credit opportunities your business would provide. An enterprise that has been in existence for at least two years has the highest likelihood of obtaining financing.

businessman filling the small business loan form online

4. Nature of Business

Any company may be categorised as Cyclical, Defensive, or growth based on the essence of their operations. Additionally, it is contingent upon the stage and maturity of the company. For example, health care, household, and personal care industries are typically protective due to their businesses' non-cyclical nature.

On the other hand, cyclical businesses are highly dependent on the economy's ups and downs and operate in lockstep with the economic cycle. For instance, a carmaker is a cyclical business when people purchase more cars during periods of economic expansion.

Growth firms are typically younger enterprises who expand rapidly early on with a brilliant concept before maturing and stabilising as a defensive enterprise. Thus, the loan volume and feasibility of the loan are highly dependent on the form of the company being financed, its state of progress, the potential of that business and expansion plans, as well as the economic situation of the economy, which has a significant impact on the business and its growth.

5. Lack of a Proper Plan

In the economic system, having a schedule and keeping to it is much more appealing than spontaneity. Additionally, it increases the chances of obtaining a business loan & it is necessary to create a detailed business plan before even stepping into the office of a lender.

A typical business plan contains an overview of the organisation, its industry, goods, and financials. If you're unsure whether the proposal is convincing enough to persuade a lender, suggest hiring a business plan specialist to analyse it. Additionally, you should clarify how you plan to spend the funds you want to borrow.

6. Disorganised paperwork

Company owners better get their actions together prior to contacting prospective lenders. It implies getting all the requisite documentation done ahead of time. Obligatory reporting also contains a written business strategy and evidence of collateral; comprehensive financial reports such as income tax returns, personal and business bank accounts, credit background, and a balance sheet; and legal documentation such as franchise deals, business licenses, and registrations. Therefore, take the time to compile all relevant material, fill out the documents, and proofread your submission before sending it.

7. Collateral

Finally, collateral is the simplest option to repay a debt when it converts it into a guaranteed loan, as opposed to an unsecured loan, such as a personal loan. To get the loan, the business' promoters or the sole proprietor may offer guarantees in the form of a personal guarantee, and banks find it somewhat simpler to provide and sanction the loan, so it becomes a guaranteed loan with collateral.

Collaterals include real estate, company inventory, cash savings or withdrawals, as well as cars and appliances.

8. Unconcern

Most of the business loan application phase is methodical, driven by the orderly display of concrete documents. It's simple to overlook that this is still an innately emotional process. Many business owners actually can not explain that they are a better choice for a loan than anyone else. According to Steck, they treat lenders with apathy.

How to get Business Loan

Step1-> Visit your preferable platform, either bank or online, analyze and compare all the business loans offered by them.

Step2-> Select the deal that best meets your business requirements by filling out the necessary details.

Step3-> After submitting the details, the respective lender will contact you for further verification, and the loan formalities will be conducted by them.

Step4-> After your loan application is accepted, the approved loan balance will be disbursed in the specified bank account within specified working days.

eligibility word written on a white piece of paper placed on keyboard

Business Loan Eligibility

Business loan eligibility depends on various factors. A business loan may be obtained with or without collateral; this is determined by the bank that makes the loan and the level of risk they are willing to accept.

Limited or Private Limited:  The concern's net profits could be greater than 150,000 a year for business loans up to 1,500,000 and greater than 300,000 for business loans greater than 1,500,000.

Partnership Firm:  Each investor should contribute a minimum of 25% of the company's revenue.

Age: Applicants must be at least 21 years old and max 65 years old.

Citizenship: Indian Citizen who has no criminal record.

Income: The business should be profitable for at least the last two years.

Turnover: A minimum annual salary of Rs.150,000 should be established.


Due to regulatory barriers, associated expenses, and the time taken to secure funding, small companies cannot access the stock and bond markets for funding. Small companies depend on debt items such as business loans or commercial loans. Business loans may ultimately be utilised for any commercial reason. The business must specify the purpose of the business loan during the loan application phase.

Also Read:

1) Profitable Small Businesses Worth Starting in 2021
2) What Business Can I Start With 5 Lakhs in a Small Town?
3) Best Businesses You Can Start with No Money
4) OkCredit: Simple, Paperless & Secure solution for businesses


Q. How do I get a first-time small business loan?

Ans. You must have a good credit score or a strong business plan to qualify for a business loan.

Q. How do I apply for a business loan online?

  • Apply on a verified online platform
  • Upload necessary documents
  • Get Sanctioned

Q. Can I apply for a grant to start up a business?

Ans. The SBIR offers grants to small businesses. To be eligible for SBIR grants, you must run a for-profit business and meet other criteria.

Q. What should I know before applying for a business loan?

  • Proper Business plan & the purpose
  • Financial statements
  • Credit Score
  • Acknowledge the collateral potential
  • Comprehend the total expense of the loan.