A Quick Guide On How To Avail A CA Loan In India
Nov 26, 2024 | 4 mins read
Securing an SME Loan can be a game-changer for small and medium enterprises looking to expand operations, boost working capital or invest in new opportunities. Meeting the SME Loan eligibility criteria is critical to ensure your loan application is approved seamlessly. By understanding and meeting the SME Loan requirements, you can access the funds necessary to achieve your business goals.
1. Age:
Applicants must be 24 to 65 years old.
2. Turnover:
The business should have an annual turnover ranging from ₹ 80 Lakh to ₹ 250 Crore
3. Minimum Business Vintage:
Your business should have been operational for at least 3 years.
4. Credit History:
A minimum of 6 months of credit history is required.
Lenders use specific parameters to calculate SME Loan eligibility:
1. Revenue Assessment
Annual turnover and net income are assessed to determine repayment capacity.
2. Financial Ratios
- Debt-to-income ratio: Reflects how much of your income is allocated to existing debts.
- Current ratio: Assesses liquidity to meet short-term obligations.
3. Credit History Check
Past credit behaviour, repayment track record, and existing debt obligations are evaluated.
4. Collateral Valuation (if applicable)
For secured loans, the value of collateral is appraised to ensure loan coverage.
5. Business Plan Evaluation
Lenders review growth projections and loan utilisation plans.
This structured approach ensures lenders accurately evaluate an applicant’s repayment capacity.
Certain factors can either strengthen or weaken your eligibility:
1. Positive Factors
- High Credit Score: Reflects financial responsibility.
- Consistent Revenue: Demonstrates business stability.
- Strong Financial Ratios: Indicates sound financial health.
- Timely Tax Filings: Ensures compliance and credibility.
2. Negative Factors
- Low Credit Score: Suggests a higher risk to lenders.
- Irregular Cash Flow: Indicates potential repayment issues.
– High Debt-to-Income Ratio: May signal over-leverage.
- Incomplete Documentation: Can lead to delays or rejection.
Understanding these factors helps applicants address weaknesses and present a stronger case.
Improving your SME Loan eligibility requires strategic efforts. Here’s how:
1. Maintain a Strong Credit Score
Repay existing debts on time and avoid multiple loan applications within a short period.
2. Organise Accurate Documentation
Ensure all financial records, tax filings, and business registrations are up-to-date and provide clear and comprehensive information in your loan application.
3. Enhance Cash Flow
Optimise working capital management to ensure steady inflow and outflow. Use bank statements to demonstrate consistent revenue.
4. Reduce Existing Debts
Pay off smaller loans or liabilities to improve your debt-to-income ratio..
5. Showcase Business Potential
Create a compelling business plan with clear growth projections and loan utilisation strategies.
Focusing on these areas can address common challenges and improve your standing with lenders.
