In case of unsecured loans, each has its own set of policies. If the borrower does not fulfil the bank's eligibility criteria, the bank rejects his/her loan application. So, here are few tips which will help you to improve your chances of getting your loan application improved.

Improve Credit Score – First of all, identify the factors that have resulted in a low credit score. Credit score can be adversely affected due to late payment of credit card or default in outstanding loan EMI payments. Defaulting and late payments, both result in bad credit score. It is extremely important to maintain healthy credit repayment track record and make all your payments on time. Always ensure that you have adequate balance in your bank account to make ECS transactions.

Avoid multiple loan applications - Sometimes, you apply for business loan with multiple banks in order to improve your chance of getting loan on time. However, applying for loan at multiple banks at the same time increases the chances of the loan being rejected as each query gets captured in your credit report. Customers are also unaware that any loan that is rejected by a bank, has a less chance of getting an approval at other banks as well. Banks tend to become more cautious in lending to customers who have been rejected by other banks.

Choose your Bank wisely – Research the banks which are offering best business loan interest rates. Opt for a bank which offers fast service with low interest rates. You must also calculate your loan eligibility using MyLoanCare Eligibility Calculator to get an estimate of your loan eligibility and your ability to service loan repayments from your monthly cash flows. You can apply for a quick business loan through MyLoanCare to get best deals on rates and processing fee from top banks in India

Business Existence – Generally, banks give loan to businesses with minimum business existence of 3 years. For new businesses, start-ups and loss making businesses, chances of getting an unsecured business loan is low. In this case, you should explore options of secured business loans.

Apply for a loan amount based on your repayment capacity – Determine the loan amount that you can easily repay in future. If you apply for a loan amount which is higher than your eligibility, it can create doubt in the mind of lender and lead to rejection of your loan application. So, make sure you choose the correct loan amount that you can comfortably service.

Maintain proper accounts and financial information- As a business entity, it is extremely critical that you have your GST registration in place. Also, it is advisable to keep audited record of your financial statements, as the same are an important set of documents referred to by the bank at the time of calculating your eligibility.

Regularly check your CIBIL Score: As a business entity which can need to borrow frequently from banks, it is advisable to access your credit score report on a regular basis and do regular timely corrections in your report.

If you are self employed, then there could be a possibility that your reported income is lesser than your real income. Many banks and NBFC have specific programs which offer you a higher eligibility based on an estimate of your real income and not entirely on the basis of your reported income. If you visit a traditional bank for this loan, chances are that you will be eligible for a lower loan amount. There are few banks and NBFCs which offer surrogate products to calculate your correct eligibility and offer you highest loan amount based on your estimated income. Some of these popular loan products are:

• Banks consider banking surrogate program to define your eligibility. This helps in assessing your net income. Banks track your 1 year banking behavior to estimate your average bank balance. Your net income is the multiplier of your average monthly balance and if you well maintain your bank balance then it won't come your way to get your loan sanctioned.
• ITR program also helps to calculate eligibility in case you do not have audited financial statements of your company. Banks are strict to the fact that they need income tax report of past 3 years. ITR of 3 years is important to estimate your income, profit and losses of your business and other deductions. It also shows your tax refund or tax liability.
• Some banks offer turnover program in which your loan amount eligibility is based on the turnover of your company. Turnover eligibility can be different for different industry segments. Some banks consider minimum annual turnover of Rs. 25 lakh for manufacturers and Rs. 50 lakh for traders. However, there are few banks and NBFCs which give small business loan for low turnovers and loan amount. Industry margin is pre-decided by lenders for specific industry segment in which customer falls. Industry margin is used as a multiplier to the turnover of your company that helps in determining your income. Your income eligibility is calculated as : Industry Margin * Turnover – Obligations. Your eligibility will be higher if your turnover is high. However, banks consider bank statement and VAT returns of 6 months to know your real income which is higher than what you have mentioned in books.

• Business Loan Rates - Interest rate on business loan depends upon your business, the loan amount you have applied for and your past relationship with the bank. Current rate of interest on business loan starts at 14.00%.
• Processing fees – Most banks charges minimum processing fees of 2% to 3% on loans. To get lowest fee, comparison of business loan rates, offers and cashback applying online through MyLoanCare.
• Insurance premium - Since these loans are unsecured loans, it is advisable to take an insurance policy like life and accidental insurance by the name of the borrower when availing a loan. Most banks give insurance coverage to the owner of the company to protect the financial risks in case of any emergencies. However, the premium varies from bank to bank depending upon the risk coverage under various policies and loan amount borrowed by the applicant. So, check the loan terms of the bank carefully to know the coverage and premium. And, consider other banks and insurance companies also who offer better insurance plan for the same amount.
• Prepayment and foreclosure – Nobody wants to keep paying interest on a loan when you have surplus money available to repay it. When you want to repay your loan partially before time, its called part prepayment. In case you decide to pay the entire loan amount before time, it is called foreclosure. Banks typically levy prepayment or foreclosure charges in such situations and these can be upto 5%. So, check carefully if the low rate of interest you are getting comes with high prepayment or foreclosure charges. Note that some business loans cannot be repaid before time.

• Signed Application Form
• Identity Proof (PAN)
• Residential Address Proof
• Last 3 years ITR (self and business), profit and loss account, balance sheets certified/audited by a CA.
• Last 12 months bank account statement (self and business)
• Certificate and Proof of Business Existence
• Business Profile
• Office address - ownership/ lease / rent agreement/ utility bill

• MSME Related Announcements in Budget 2022
  
  • ECLGS to be extended upto March 2023, guaranteed cover extended by another Rs 50,000 crore.
  • SMEs such as Udyam, e-shram, NCS & Aseem portals to be linked.