How Much Revenue Do I Need For A Business Loan?

Every business needs money to grow and even survive. Capital is necessary for proper running of the business operations as well as for earning profits that can be ploughed back into the business for expansion or taken out by the shareholders as dividends. So, if the entrepreneurs are not financing their business with their personal sources, taking out a business loan from banks or non-banking finance companies can be important.

The numerous borrowing options available to business people include traditional banks, NBFCs, private debt firms and crowdfunding. Lenders mostly prefer doing business with companies that have healthy revenue streams. This is primarily to ensure that the business has adequate money to pay off the entire dues along with interest.

Banks and NBFCs may have different eligibility parameters for evaluating a business loan application. One of the parameters that is common among all lenders is the revenue of a business applying for a loan. The minimum level of revenue required to be eligible for a business loan may differ from lender to lender. However, in general, to get a loan from a lender the business must have a minimum annual turnover of Rs 40 lakh.

For self-employed professionals, the applicant’s income is critical for obtaining a business loan. As per the loan eligibility criteria the minimum consideration for self-employed individuals is Rs 1.5 lakh per annum. In addition, all business loans are given based on the age of the business. So, it is mandatory to be in the current business for a minimum of two-three years with good financial standing.

Why Is Revenue Important For Lenders?

For lenders, all types of loans involve a certain degree of risk of non-repayment or default by the borrower. Lenders, therefore, look at the cash flow of the business because capital is the lifeline of every venture. It is the funds available to a business for running day-to-day operations. Cash flows can either be positive or negative.

Lenders assess a business’ efficiency and its financial health based on its cash flow. A positive revenue stream is an indication that the business has enough cash in hand to make the loan repayment. Contrarily, a negative cash flow is like a warning sign to the lender.

Business Loans For Businesses With Low Revenue

Banks have an elaborate method for granting or rejecting loan applications. So, before applying for a business loan, every business owner should be acquainted with the eligibility criteria of the bank. That said, it does not mean that businesses with low revenue cannot qualify for business loans.

Businesses at some point of time may face phases of low revenue generation. But even with that one can manage to get loans. This is because the minimum yearly turnover necessary to apply for a business loan varies from lender to lender. There are some lending institutions that offer money to businesses with a minimum annual turnover of just Rs 10 lakh.

However, to improve the eligibility of business loans applicants must take note of the following factors:

• Prepare A Business Plan:

A detailed business plan envisaging growth projections for the next few years can impress the lenders to sanction a business loan at a lower interest rate. The business plan must have ideas of repaying the loan taking into account a low revenue cycle, if any.

• Do The Paperwork:

Lenders ask for a number of supporting documents before sanctioning a loan application. These include bank statements, income proofs, profit and loss statements and balance sheets, income tax returns proofs, proofs of incorporation and of Goods and Service Tax (GST) payments, etc. Applicants should be careful to give all the latest documents and must also avoid submitting any misleading information.

• Build A Healthy Credit Score:

Higher loan amounts translate to greater risks for lenders. To minimise the possible losses, lenders prefer lending to applicants with high CIBIL score. A credit score of 750 and above is a reflection of a good repayment track record. Businesses with low revenue but a good credit score stand a good chance of getting business loans at favourable interest rates.

Conclusion

Business loans offer quick access to funds. They come in several forms and have varying terms and interest rates depending on the loan type.

It can be difficult for businesses with low income to deal with a paucity in funds. But it is the sole responsibility of the business owner to repay the total loan amount. So, business owners interested in borrowing must act responsibly.

Even after having a good business plan, decent credit score, and all the essential papers, if an applicant faces rejection because of low revenue, it will be wise to consider alternative funding solutions. Simultaneously, it should contemplate on other ways of revenue generation.

Still, if one is considering borrowing from a bank or an NBFCs, it is important to approach a reputed lender like IIFL Finance. The Mumbai-based NBFC offers business loans to enable enterprises to run their operations without interruption. Any entrepreneur, startup, self-employed business person and MSME can utilise these funds to start new projects, purchase equipment, hire and train people, etc.

IIFL Finance offers loans with flexible repayment options and minimum documentation. Prospective borrowers can check their eligibility online or at any IIFL Bank branch for a hassle-free borrowing experience.