Businesses operate on the backbone of finance. You need funds to leverage your working capital, equipment, and other fixed assets. These business requirements can be financed with business loans. However, the loan amount that will be sanctioned to you will depend on various factors.
Here are the various factors determining the loan amount sanctioned to you:
Credit Score
It is comparatively easier to get your loan sanctioned if you have high credit score. You can get your desired loan amount approved if your credit scores are flagged green.
Credit report reflects your creditworthiness, and is an important factor to determine the loan amount, and the interest of your business loans.
The credit report highlights the debt taken, repayment of the loans, and the capability of repaying debt.
Some of the credit bureaus that provide credit information reports (CIR) to businesses in India are:
- TransUnion CIBIL
- CRISIL
- Equifax
- Experian, and
- CRIF High Mark
For example, The CIBIL score ranges from 300 - 900. The recommended range is 750 and above. If you have a CIBIL credit score of 750+, you can get a higher business loan amount approved.
It is important to note that any red flag will decrease the chances of approval of the desired loan amount. Some of these red flags include:
- Too many loans
- Loan defaults, bounced cheques
- Consumer or client grievances
- Negative cash flows
Liquidity Factor
Your company should have positive cash flow by efficient management of cash inflows, and the expenditure. Lenders assess the liquidity status of the company before lending the money. Positive cash flow is another vital factor to determine the sanctioned loan amount.
However, there can be a positive cash flow due to inadequate raw materials or finished products. This will not be considered positive by the lenders. The sales volume should be steady or increasing, along with the positive cash flow.
Some of the important liquidity ratios such as current ratio, and quick ratio should be 1 or more.
Business Plan
A solid business model with a thorough sales projection, reflects your capability to repay the business loan.. A sound model will show:
- List of projects completed, and those in the pipeline
- Marketing strategy
- Sales channels, etc.
The lenders need to be convinced on the aspects of future sales, and profits, so that they have the confidence that you can repay their debt.In addition to these factors, you need to have all your documentation in place, and meet the eligibility criteria to get the desired business loan amount sanctioned from the NBFCs.
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