Establishing a business is a challenging effort that needs meticulous preparation and funding. Applying for a business loan is one of the most important steps in getting the required money. But getting a loan can be difficult, particularly if you don’t know how it works or what factors lenders take into account. The five Cs of lending apply in this situation. Credit score, capacity, collateral, terms, and capital are the five main elements that determine if you are going to be granted a business loan.
We’ll go over each of these elements in detail in this post so you can see what lenders consider when reviewing your loan application.
You may increase your chances of getting the funds that you need to expand a business. By taking into account these 5 Cs, you can make sure that you match their qualifying standards.
How Do Business Loans Come into Play?
Businesses can obtain business loans from traditional banks and digital lenders to supplement their cash flow. The funds may be given as a revolving line of credit, where interest is only paid on the remaining balance, or as a lump-sum payment, where interest is paid on the whole loan sum, based on your lender. The principal, interest, and charges of the loan must be repaid by your business on time. Repayment schedules differ depending on the lender and type of loan.
Business Loan Highlights 2024
| Loan Provider | R.O.I | Processing Fees | Loan Amount | Cibil Score |
| HDFC Bank Business Loan | 16% – 20% (Reducing Per Annum) | 1% – 2% | 1.00 Lacs – 10.00 Lacs | 700 |
| Poonawala Finance Business Loan | 18.75% – 20% (Reducing Per Annum) | 2% – 4% | 2.00 Lacs – 10.00 Lacs | 700 |
| Bajaj Finserv Business Loan | 21% – 24% (Reducing Per Annum) | 2% – 3% | 1.50 Lacs – 30.00 Lacs | 720 |
| Tata Capital Business Loan | 22% – 25% (Reducing Per Annum) | 3% – 4% | 1.00 Lacs – 15.00 Lacs | 675 |
| Lendingkart Business Loan | 21% – 40% (Reducing Per Annum) | 3% – 4% | 1.00 Lacs – 1.00 cr | 600 |
| Incred Business Loan | 16% – 33% (Reducing Per Annum) | 2% – 5% | 50.00 k – 10.00 Lacs | 650 |
| Flexi Business Loan | 18% – 30% (Reducing Per Annum) | 3% – 4% | 1.00 Lacs – 25.00 Lacs | 700 |
| Indifi Unsecured Business Loan | 18% – 30% (Reducing Per Annum) | 3% – 4% | 1.00 Lacs – 30.00 Lacs | 700 |
| PaySense Business Loan | 18% – 22% (Reducing Per Annum) | 2% – 6% | 50.00 k – 10.00 Lacs | 700 |
| Ayefin Business Loan | 28% – 29.5% (Reducing Per Annum) | 2.5% – 3% | 5.00 k – 3.50 Lacs | 650 |
| Faircent Eazzy Loan | 25% – 30% (Reducing Per Annum) | 7% – 8% | 50.00 k – 1.50 Lacs | 630 |
| Money View Business Loan | 16% – 36% (Reducing Per Annum) | 2% – 5% | 5.00 k – 5.00 Lacs | 650 |
| Hero Fincorp Business Loan | 19% – 27% (Reducing Per Annum) | 2% – 4% | 1.00 Lacs – 5.00 Lacs | 630 |
| Faircent Business Loan | 25% – 30% (Reducing Per Annum) | 7% – 9% | 50.00 k – 10.00 Lacs | 550 |
| Ambit Finance Business Loan | 20% – 28% (Reducing Per Annum) | 3% – 3.5% | 2.00 Lacs – 50.00 Lacs | 675 |
| Choice Finserv Business Loan | 22% – 26% (Reducing Per Annum) | 2% – 3% | 1.00 Lacs – 7.50 Lacs | 700 |
| Get Vantage Business Loan | 16% – 20% (Reducing Per Annum) | 5% – 8% | 5.00 Lacs – 10.00 cr | 700 |
| Recur Club Business Loan | 16% – 20% (Reducing Per Annum) | 2% – 3% | 10.00 Lacs – 10.00 cr | 650 |
| MAXEMO Business Loan | 22% – 30% (Reducing Per Annum) | 4% – 8% | 5.00 Lacs – 30.00 Lacs | 650 |
| ARKA Business Loan | 18% – 20% (Reducing Per Annum) | 2% – 3% | 1.00 Lacs – 30.00 Lacs | 700 |
| FINAGG Supply Chain Finance | 18% – 20% (Reducing Per Annum) | 2% – 3% | 1.00 Lacs – 50.00 Lacs | 700 |
| Stashfin Business Loan | 2.45% – 4% (Fixed Monthly) | 1% – 1% | 10.00 k – 5.00 Lacs | 725 |
| HDFC Bank Business Loan | 16% – 18% (Reducing Per Annum) | 1% – 2% | 1.00 Lacs – 75.00 Lacs | 700 |
| ICICI Bank Business Loan | 16% – 18.5% (Reducing Per Annum) | 1.5% – 2% | 10.00 Lacs – 1.00 cr | 700 |
| Yes Bank Business Loan | 16.5% – 19.5% (Reducing Per Annum) | 2.5% – 4% | 5.00 Lacs – 50.00 Lacs | 650 |
| Induslnd Bank Business Loan | 16% – 20% (Reducing Per Annum) | 2% – 3% | 10.00 Lacs – 50.00 Lacs | 680 |
| AXIS Bank Business Loan | 16% – 18% (Reducing Per Annum) | 1.75% – 3% | 5.00 Lacs – 75.00 Lacs | 700 |
| Kotak Mahindra Business Loan | 16% – 18% (Reducing Per Annum) | 2% – 3% | 5.00 Lacs – 2.00 cr | 630 |
| Deutsche Bank Business Loan | 16% – 20% (Reducing Per Annum) | 2% – 3% | 15.00 Lacs – 1.00 cr | 680 |
| IDFC Bank Business Loan | 16% – 19% (Reducing Per Annum) | 1.5% – 3% | 10.00 Lacs – 75.00 Lacs | 700 |
| Standard Chartered Business Loan | 16.5% – 18% (Reducing Per Annum) | 2% – 3% | 10.00 Lacs – 1.00 cr | 720 |
| Unity Bank Business Loan | 16.5% – 22% (Reducing Per Annum) | 2% – 3% | 10.00 Lacs – 50.00 Lacs | 700 |
| Bajaj Finserv Business Loan | 17% – 20% (Reducing Per Annum) | 1.75% – 3% | 5.00 Lacs – 50.00 Lacs | 700 |
| Aditya Birla Business Loan | 15.75% – 20% (Reducing Per Annum) | 2% – 3% | 5.00 Lacs – 50.00 Lacs | 700 |
| Aditya Birla Business Loan (Small) | 23% – 29% (Reducing Per Annum) | 2.5% – 3.75% | 1.00 Lacs – 10.00 Lacs | 700 |
| Tata Capital Business Loan | 17% – 20% (Reducing Per Annum) | 2% – 3% | 7.50 Lacs – 50.00 Lacs | 700 |
| Hero Fincorp Business Loan | 18% – 21% (Reducing Per Annum) | 2% – 3% | 7.00 Lacs – 40.00 Lacs | 700 |
| Piramal Finance Business Loan | 16.49% – 25% (Reducing Per Annum) | 2.75% – 4% | 1.00 Lacs |
The 5 Cs to Look Into When Requesting a Business Loan
- 1. Credit Score
Among the most vital factors that matter most when applying for a business loan is your credit score. It gives lenders insight into your credit and reveals the nature of your previous loan payments. A lower rate can lead to higher rates and a drastic review of your business plan, while it may not always lead to rejection. Many lenders offer competitive business loan rates based on the creditworthiness of their customers. Lenders generally favor customers with credit scores of 750 or above in determining their credit status. However, a few lenders will accept applicants as low as 650 or 600 points. However, most lenders are hesitant to lend to borrowers with less than 500 credit scores.
- Capacity
This is the ability of your business to repay business loans. Your credit and income, as opposed to regular monthly debt payments and income, is one way lenders look into this. As low as your DTI ratio, the more you are able to pay off the loan.
You can use a business loan EMI calculator to know how much you need to pay. You have two options to increase your capacity: increase operating income or reduce costs. Another way to increase the DTI of a loan application is to co-sign with a borrower whose credit-to-income ratio is low.
- Collateral
Assets that can be pledged as security for a loan are referred to as collateral. Lenders may ask for collateral in the form of stock, real estate, or equipment when an applicant is seeking a longer-term or larger loan for commercial purposes.
For example, let’s say you require a sizable sum of money in order to grow your transportation company. In order to qualify for a highly valuable business loan from a lender, you can be asked to put up collateral in the form of company-owned automobiles or other assets.
Typically, lenders may offer up to 80% of the collateral’s market value. Consequently, you would have to find another way to raise the remainder 20%.
- Conditions
These are outside variables that may affect your company and, in turn, your capacity to pay back the loan. These variables include trends unique to your industry, macroeconomic factors, and any other situation that can have an impact on the financial health of your company. You can utilize a business loan EMI calculator to determine how much you are obligated to repay the loan, even though it’s crucial to be aware of any outside circumstances that might have an impact.
Maintaining a high credit score and keeping your financial records and accounts organized are essential. This increases your appeal as a borrower and shows that you are committed to sound financial management.
- Capital
Capital is the term for the material resources that your business can utilize to pay off debt. It consists of liquid assets like funds in bank accounts, investments, and items the lender may be able to seize at any time.
You can determine whether you qualify for a business loan and pinpoint any areas where you might need to make improvements before applying by taking into account the five Cs.
Pros of Business Loans
Check the benefits of a business loan before taking one out to be sure they match your objectives.
- Numerous Options for Financing
Many kinds of business loans are available to fulfill the unique requirements or objectives of your business. Check out several loans and select the one offering an adequate amount of funding.
Several choices consist of:
- Loans for working capital to cover daily costs
- Credit lines for businesses that are revolving.
- Startup loans intended for newly established businesses
- Financing for equipment to purchase new machinery
Depending upon how your company runs, some business loan options may be more advantageous than others. For instance, a startup loan intended for companies with no credit history can be advantageous to a recently established business.
- Quick Access to Funding
Compared to traditional banks, online lenders approve and distribute business capital more quickly. After approval, funding usually comes 5-6 working days later; some lenders even provide same-day funding. When faced with unforeseen bills or chasing time-sensitive business prospects, quick loan release is beneficial.
- Higher Loan Amounts
Funding for business loans can total up to 5 crore. These loan amounts are perfect for investing in real estate, starting new businesses, boosting output, and pursuing other expansion prospects.
- Increases Business Credit
As long as the financial institution reports your payments to the major business credit bureaus, you can establish business credit by making regular payments. Business credit can be used by suppliers, insurers, and lenders to decide how risky it is to do business with you. Having a high business credit score could make it easier for you to get better terms.
Cons of Business Loans
Look into the drawbacks of a business loan and compare them to the financial objectives of your business.
- Strict Eligibility Standards
Authorizing business loans involves significant levels of risk taking on the part of lenders. Because of this, the majority of lenders establish minimum borrowing restrictions, such as:
- A specified Annual Revenue.
- A year or two years of any business in operation.
- A minimum credit score of 600 is required.
Stricter criteria may make it difficult for startups or less mature companies to be approved for a business loan. If the aforementioned conditions are not met, you might look for a personal loan.
- May Need a Personal Guarantee or Collateral
When you apply for a business loan, many lenders want you to provide collateral or a personal guarantee. When you pledge real estate, machinery, or other assets that the lender may take if you don’t return the loan, it is known as collateral. In contrast, a personal guarantee places your credit score and assets at risk by holding you legally liable for returning the loan with your personal assets in the event that your business is unable to do so.
- Higher Rates of Interest
Comparing business loans to other financial products like personal loans, business loans usually have higher interest rates. Your credit score, your business history, the type of loan you ask for, and the financial institution you select will all affect your interest rate. However, the easiest approach to getting better rates is usually to lower your credit score.
- Financial Stress in Your Business
Taking out a business loan typically entails making consistent daily, weekly, or monthly payments, which, if your organization doesn’t make enough money, could put pressure on its finances.
In addition to restricting your options, business loans can hamper your growth and, in the worst-case scenario, put you in a debt trap. Before picking out a loan, it’s important to evaluate your cash flow and keep every relevant aspect in mind.
Is a Business Loan a Good Choice for You?
If you are able to cover the periodic payments and you have a well-defined plan for growing your firm—whether it’s putting money into marketing, buying products, or expanding operations—a business loan can be a suitable choice. A business loan might not be the best option, though, if you don’t have an organized strategy for how you’re going to use the money or if your business has debt that you might find challenging to pay back.
Bottom Line
One of the most crucial steps in achieving your entrepreneurial goals is applying for a business loan. Credit score, capacity, collateral, conditions, and capital are the five Cs of lending that you should be aware of. You should be mindful of these 5 Cs to improve your chances of getting the money you are seeking to establish your business.
Always keep an eye on your credit score and work to raise it. You can also show that you have a good ability to repay debt by creating a solid financial plan and generating income. If necessary, have collateral ready that equals the required loan sum, and monitor outside circumstances that might affect loan approvals. It’s crucial to pick a lender that best fits the requirements of the business you run.
Through Refer Loan’s platform, you can get business loans with favorable interest rates and an expedited application procedure that are tailored to the needs of budding entrepreneurs. Take a look at their offerings to determine which financing option best suits your needs.