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A business loan is sanctioned after the lender verifies certain business loan eligibility criteria. One of the criteria is the minimum turnover for a business loan mentioned in the loan documents. Every lender has set a minimum turnover amount a business should have to apply for a business loan.
The minimum turnover will differ according to the type of business loan. For example, small business loans usually require less turnover unlike long-term business loans. The minimum turnover criteria will also differ from one lender to another.
What is the minimum turnover for a business loan?
The minimum turnover for a business loan is specified by each lender in the loan documents. While long-term business loans featuring large amounts do have a mandatory minimum turnover included in the eligibility criteria, small business loans often don’t have this eligibility criteria.
Lenders look at the books of accounts and determine the company’s financial status while keeping a close eye on revenue generation. If they are satisfied small business loans are sanctioned. When the lender checks your financial documents, to determine the health of your business finances, the lender will scrutinise the following aspects:
- Revenue generation
Lender will closely examine your books of accounts to study the profit that you are making annually. If your business has been profitable for a few years indicating that you have steady income, then you have a higher chance of getting the loan sanctioned.
- Business stability
Business loans are given to businesses that are at least 2 years old. The age of the business (i.e., business vintage) helps determine the stability of the company. Older companies tend to get loans approved faster as they already have a proven track record in the market.
- Business industry
The lender will examine the industry your business is in and try to determine its potential for growth and achieving profits in the future. Lenders believe that growth and revenue potential points to the fact that the business will have the capability to pay off a loan.
- Purpose of loan
A business loan can be taken for many purposes. Businesses applying for a loan to fund income-generating activities have higher chances of loan approval.
- Personal guarantor
Most small businesses are asked to give a personal guarantee for a business loan by mentioning a personal guarantor while applying for a loan. A personal guarantor is required to sign off on the loan being lent to the business. This is usually on top of the collateral being submitted for business loans. If the lender is satisfied with the financials of the personal guarantor and his reputation, a business loan stands a better chance at getting approved.
- Credit score
The bank will check the credit score of the borrower to determine his/her repayment capability. They will also dive into a firm’s outstanding loan and repayment history and liabilities. A good credit history is important to get your loan application sanctioned.
Loan approval will be based on the above points for a small business loan. Therefore, instead of making minimum turnover for a business loan a necessary eligibility criterion, lenders surmise your financial health and then give you a loan.
Unlike small business loans, long-term business loans usually require a minimum turnover. For most lenders, the minimum turnover for a business loan is ₹40 Lakh. It is recommended therefore to consult with different banks and NBFCs on their loan eligibility qualifications before finalising on a loan product.
Can you get a business loan if your revenue is low?
As mentioned before, small business loans have an eligibility criterion that doesn’t consider a minimum turnover. They find out repayment capability of a business based on the above-mentioned points. There are certain things you can do to improve your chances of getting a business loan approved:
- Have a healthy credit profile without loan defaults
Your credit profile, including your credit history and credit report, is extremely important when applying for a loan. Business credit scores determine whether a business can get a loan approved by a lender. In general, a minimum credit score of 650 and above is considered a high CIBIL score value which makes you a reliable borrower.
- Fill in the application form accurately and submit correct documents
Read the loan requirements carefully and make a note of all the documents that must be submitted along with the application. Proofs of incorporation, bank statements, profit and loss statements and balance sheets, income tax returns proof and of Goods and Service Tax (GST) payments, etc., are important documents asked for by a loan provider.
- Learn about government schemes that gives easy access to finance
There are many government schemes that a business can explore for getting business loans. Government programmes like Stand-Up India schemes, Pradhan Mantri Mudra Yojana (PMMY) scheme, Credit Guarantee Fund Trust for Micro and Small Enterprises or CGTMSE scheme, etc., can be applied for by businesses to get easy loans with lower interest rates.
Alternatively, you can also check Business Loans on Tata nexarc to find collateral-free business loans up to ₹30 lakh offered by leading banks and financial institutions in India. The process is online, requires minimum documentation, and a loan offer can be made within 5 minutes.