Given the growth in the number of SMEs in India, it is clear that SMEs are witnessing good business opportunities. The next step is to procure small business funding to take capitalize on the business opportunities as promoter funding is limited in case of SMEs. Once a business has identified the need for small business funding, the next is to check the eligibility for an unsecured business loan online. Fintech lenders, which provide online business loans have relatively relaxed criteria as compared to their banking counterparts. The working capital loan is availed by a borrower to meet the daily routine expenses of business nature namely payment to suppliers, raw material purchase, wages and other short-term needs. After the loan applicant submits the online loan application and uploads the relevant documentation, the fintech lender conducts the verification and evaluates the eligibility criteria on the following parameters:
- Turnover: Many NBFCs mandate a minimum turnover of Rs 40 lakhs. Healthy revenues are a strong indication of the repayment capabilities of the business.
- Period of operations: Many fintech lenders insist on an operational period of at least 3 years. The business loan is primarily being extended after evaluation of the business performance and the viability of the business model. In case of any incidence of a temporary shutdown of operations, this reflects poorly on the sustainability and longevity of the business
- GST compliance: This is critical as it shows the business as being legally compliant with the relevant laws. A lender would be willing to lend to a legally sound business to reduce the lending risk.
- Bank Statements: NBFCs require submission of the bank statements of the last 6 months. This provides a reasonable estimate of the turnover and the stability of income. This helps decide the amount of business loan to be sanctioned.
- Income tax Returns: The income tax filings of both the business as well as the business owner is required to be submitted. The structure of the business may vary i.e. either a sole proprietorship, partnership firm or company, but all have to file IT returns.
- Age limit of the loan applicant: The loan applicant age group should fall between 21 -65 years i.e. the working age group. In the event of a shortfall in business income, the income of the loan applicant or co-applicant is also present to contribute towards the EMI repayment to the lender. This acts as a safeguard for the lender.
- Credit Score: The credit score provides an understanding of the credit position of the business and its owners. This is determined by evaluation of past loan repayment track record and any incident of credit risk. This is evaluated at the first stage before loan processing itself. A good credit score will improve the chance of loan approval with favourable terms. Defaults on payments, fraudulent activities, and huge outstanding dues will negatively impact the chance of obtaining small business funding. Further, an SME business owner need not lose heart. In case of rejection by banks, there are still chances of obtaining unsecured business loans from fintech lenders. However, one should not have indulged in intentional malpractice.
- Criminal background: There is a strict no-no policy in case of lending to crime cases. If ever the loan applicant has been found guilty in a criminal act the probability of obtaining a business loan is nil. Every lender would only be willing to extend loans to law abiding citizens with a good track record as staying on the right side of the law.
- Business Stability: This is an important factor while processing a business loan. Lenders lend to business units with regular income, earned from legal business activities and healthy profit margins. This is especially looked into by fintech lenders, which do not require collateral cover and provide unsecured business loans solely on the financial strength of the business.
The working capital loan is extended in the short term without collateral cover. Broadly, the basic eligibility criteria are a minimum turnover size, legal compliance of GST and IT Laws, profit generation and feasible business model.