Let’s face it! Without appropriate finance, expanding your business will be near impossible. And one of the most popular sources of funding to start or grow your business is a business loan.
Availing business finance covers a wide array of expenses ranging from equipment to inventory purchase and fulfilling working capital requirements. But since every business runs on a different scale, small or large, the loan amounts required are also varied.
If you wish to ensure you receive a desired loan amount from the lender, there’s a few factors you need to consider. Learn about the various factors affecting your loan amount below.
Credit rating
One of the most significant factors affecting the amount of loan you get is your credit score. Your credit or CIBIL rating is a measure of your creditworthiness and repayment capability. It is also one of the primary factors determining your business loan eligibility.
A CIBIL score ranges from 300 to 900 points. And the higher you go, the better your chances of receiving the loan amount you desire. A score of 750 or above is considered excellent. However, if your CIBIL score is lower, don’t fret! You can quickly improve it by rectifying your credit repayment history.
Make sure to pay your credit card debt and ongoing EMIs on time because your CIBIL score is directly linked to your credit and repayment history. Also, make sure you don’t go over your credit limit regularly or apply for multiple loans simultaneously.
Collateral or guarantee
Pledging an asset or any other substantial collateral can fetch you a higher loan amount, that too, at a low business loan interest rate. Here are a few types of collaterals you can pledge to get the loan amount you desire:
- Real estate investment papers: The property that you had bought once upon a time, thinking it would be a good investment, can indeed help you access a higher loan amount.
- Equipment or machinery: You can leverage the business-owned machinery to access a substantial loan amount.
- Liquidity/ deposits: A relatively new type of collateral available for businesses big or small, deposits reflected in your business bank account can be pledged as collateral.
Robust business plan and duration of operations
If you are just starting out, a solid business plan highlighting your sales projections, list of projects completed, marketing channels, strategies, etc., can influence your business loan eligibility favorably. This also includes the loan amount you receive.
Basically, a sound business plan proves that you are organized and have accounted for most things, including how to repay the loan. Make sure you formulate a potent business plan before availing business finance for a smoother loan process.
Further, if you wish to take a loan to expand your business, then your company’s duration comes into question. An organisation successfully running for more than two years has an excellent chance of availing substantial business finance, provided other conditions are met.
Parting thoughts
If you are gearing up to apply for business loan, these are the top three points that affect the approval amount. In any case, you can use a business loan calculator to compare the rates provided by different lenders and select the most favorable one.
So, make sure you stand firm on them and file your application.