Banks and financial institutions offer financial assistance as loans to people in need; however, one has to qualify specific parameters to get loan approval. Generally, every applicant qualifies for the primary business loan eligibility and hopes that the bank or financial institution will approve their loan application, but sometimes things go how we plan. 

Apart from the general business loan eligibility guidelines, three reasons majorly influence your loan application approval an applicant –

• Personal Credit Score 

A business loan is a crucial source of funding for small business owners or start-ups. The funding helps them in the expansion and growth of their businesses. Generally, start-ups and small business owners do not have any business credit history, which puts them under the impression of qualifying for all the business loan eligibility parameters, but it’s not true.

Banks and financial institutions also consider the applicant’s personal credit scores. In case the personal credit score of an applicant is low, the business loan application will be rejected. 

Tips to Improve Personal Credit Score 

• Pay your business and personal expenses bills on time. Late payment makes you a defaulter and negatively affects your score.
• Avoid excessive usage of your available credit amount.
• Subscribe to the credit monitoring services offered by banks and financial institutions. It tracks your accounts and sends credit score reports periodically. 

• Business Credit Score 

The business credit score helps banks and financial institutions identify the loan repayment capacity of any small business or start-up. The online business loan calculator makes you eligible for a business loan, but a low or zero business credit score is a  serious concern for every lending institution.

Tips to Improve Business Credit Score 

• Pay your business expenses bill on time, including rent and utility bills. Late payment makes you a defaulter and negatively affects your score.
• Avoid excessive usage of your available credit amount.
• Subscribe to the credit monitoring services for businesses offered by banks and financial institutions. It tracks your accounts and sends credit score reports periodically. 
• Security of the Loan Amount 

This factor is generally not mentioned by any bank or a financial institution under the business loan eligibility parameters. The applicant will have to mortgage collateral against the loan amount in banks or financial institutions. The collateral ensures the security of funds and helps the lending institution recover the loan amount under a worst-case scenario. 

The collateral should be of similar or higher value than the loan amount and can be in the form of land, asset, etc. If the collateral value is lower than the loan amount, the loan application is likely to get rejected.

Tips to Improve your Collateral Value –

• The applicant can mortgage multiple assets as collateral against one loan application.
• Convince someone holding a high credit score to become a guarantor in the loan application.

Conclusion

It is essential to take note of these factors influencing your business loan eligibility. Credit scores and collateral security might not seem a concern for the applicant. Still, it is a significant concern for the banks and financial institutions, and therefore, one must aim to improve these factors.