Running a business requires a constant flow of cash, and one of the most effective ways to fuel expansion, cover operational costs, or upgrade infrastructure is by securing a business loan. However, not all loans are created equal. The amount you can borrow depends on several factors that lenders (Banks & NBFCs) consider when evaluating your loan application.
This blog will help you understand how to increase your chances of getting a higher business loan amount by maximising the factors that influence business loan eligibility. Whether you’re a small business owner, a startup, or an MSME, these tips will ensure you secure the funding you need to take your business to the next level.
Steps to Improve Your Chances of Getting a Higher Loan Amount
Manage Cash Flow
One of the most critical factors in securing a higher business loan amount is managing cash flow effectively. Lenders want to ensure that your business has a consistent and stable income flow to meet loan repayment obligations. Cash flow refers to the movement of money into and out of your business, which can impact your ability to repay a loan.
Strong cash flow signals to lenders that your business can cover monthly loan payments without financial strain. Businesses with erratic or poor cash flow may struggle to repay loans, making it harder to secure larger amounts.
Add a Co-Borrower in the Loan Application
When applying for a business loan, adding a co-borrower can significantly improve your chances of securing a higher loan amount. A co-borrower is an individual or entity that shares responsibility for loan repayment with the primary borrower. The lender evaluates the creditworthiness of both the primary borrower and the co-borrower, which may increase the loan amount you can qualify for.
A co-borrower with a strong credit history and substantial income can improve your eligibility for a larger loan. Lenders consider the combined financial strength of the borrower and co-borrower, which may result in a higher loan amount and more favourable terms.
Have a Good Business Plan
A well-prepared and comprehensive business plan is crucial to securing a higher business loan amount. Lenders want to see that you have a clear vision for your business, with well-defined goals, strategies, and financial forecasts. A business plan proves that your business is organised and poised for success, making you a less risky borrower.
A business plan demonstrates your understanding of your industry and market and how you plan to scale your business. It shows lenders that you have strategies in place to ensure the profitability and growth of your business, which directly impacts your ability to repay the loan.
Strengthen Your Credit Score
Your business credit score plays a crucial role in securing a higher loan. Lenders use your credit score to assess how well you’ve managed debt in the past. A higher credit score increases your credibility and opens the door to better loan offers with larger amounts.
How to improve your credit score:
Maintain Proper Financial Records
Clear, accurate, and up-to-date financial documentation is essential for loan approval. Lenders will scrutinise your balance sheets, profit-and-loss statements, and tax returns to evaluate your business’s financial health. Accurate financial records demonstrate your ability to manage funds, thus increasing your chances of receiving a larger loan amount.
Offer Collateral
Offering collateral can significantly increase the amount you can borrow, especially for businesses without a strong credit score. Collateral reduces the lender’s risk, making them more likely to approve higher loan amounts. However, DMI Finance offers Business Loans of up to INR 1 crore without any collateral.
Reduce Existing Debt
When deciding how much additional debt your business can handle, lenders look at your existing debts. Reducing or clearing out existing loans helps improve your debt-to-income ratio, making you more eligible for a larger loan.
Ways to reduce debt:
Loan Tenure
When applying for a business loan, many applicants overlook how loan tenure—the period over which the loan will be repaid—can impact the loan amount they qualify for. Tenure plays a crucial part in deciding how much loan amount you can borrow.
How it works:
Common Mistakes to Avoid When Applying for a Business Loan
Overestimating Loan Needs
It’s important not to overestimate how much you need. Requesting more than necessary may raise concerns for lenders about your ability to manage such a large sum. Be realistic and then calculate what you need for expansion or operational costs. Lenders are wary of businesses that request more than they need. It may signal poor financial planning or a lack of understanding of how the business will utilise the funds.
Neglecting Documentation
Another common mistake is failing to submit the required documentation or submitting incomplete documents during the loan application process. Lenders need to review specific documents to assess the viability of your business and determine your loan eligibility. Lenders may perceive incomplete submissions as a sign of poor organisation or lack of professionalism, which reduces your credibility.
Ignoring Business Debt
Failing to address existing debt can harm your chances of securing a larger loan. Lenders may hesitate to approve a large loan if they see your debt load as unmanageable. Regularly assess your debt situation and ensure that all debts are up to date.
How to Choose the Right Lender for Higher Loan Amounts
Researching Lenders
Evaluate lenders based on their loan amounts, interest rates, and eligibility criteria. Compare offers from banks and NBFCs to find the best deal for your business.
Choosing between Banks and NBFCs
Traditional banks tend to offer lower interest rates, but NBFCs may be more flexible and willing to approve higher loan amounts, especially for newer businesses.
Understanding Lender’s Risk Appetite
Lenders have different risk tolerances and may offer varying loan amounts based on your business’s financial health.
Securing a higher business loan amount can be a game-changer for your business, but it requires planning, strategy, and attention to detail. By improving business revenue, maintaining accurate financial records, offering collateral, and understanding loan terms, you can significantly increase your chances of approval for a higher loan.
This blog is part of a series on business loans, providing further details on business loan approval, the loan application process, and tips for getting the best business loans for entrepreneurs.
Frequently Asked Questions
1. What factors determine how much business loan I can get?
Lenders consider factors such as your business revenue, credit score, cash flow, existing debt, collateral, and the overall financial health of your business to determine your loan amount.
2. Can I get a higher business loan without collateral?
It’s possible under certain government schemes like CGTMSE and PMYY or through NBFCs offering unsecured business loans. DMI Finance offers business loans of up to INR 1 crore without collateral.
3. Does loan tenure affect the business loan amount I can get?
Yes. A longer loan tenure reduces monthly EMIs, improving your debt-to-income ratio. This can help you qualify for a higher loan amount compared to a shorter tenure.
4. Will adding a co-borrower help me get a higher loan amount?
Yes. A co-borrower with a good credit score and financial profile can strengthen your application and increase your chances of approval for a higher loan amount.
