Financial advances such as commercial loans are essential for businesses to fuel growth, address debts, and meet critical monetary requirements.

The rising number of Fintech companies in India has also made it possible for borrowers to avail these loans within one working day. Some even send their representatives to your house to collect documents.

These lenders also enable you to apply for a commercial loan online. You have to provide your personal information and a few details about your business to start the application process.

However, your application might not necessarily get approved. You will have to satisfy a few criteria to ensure that the same goes through.

These include:

Correct documents

Financial institutions will require various documents to establish your identity and proof of your business.

Few documents that you need to keep close:

Aadhaar, PAN, Passport, Voter ID, Driving License, etc. for proof of identity (KYC).

Trade License, Memorandum and Articles of Association, GST registration, Partnership Deed, Shops and Establishments Act certificate, etc. as proof of business.

Income tax returns of the previous year.

Bank account statement of the last year.

Profit & Loss Account, Balance Sheet, and other financial documents. You may also have to audit these by a CA.

The list of documents mentioned above is indicative and not exhaustive. You may need to provide additional documents.

Correct eligibility criteria

The eligibility criteria of commercial loan are minimal, and you need to be between the ages of 25 and 55 years with a business vintage of at least 3 years to apply.

Lenders may also make an inquiry to check your CIBIL score. You must know how to ensure it stays above 700 to apply. There is an 80% chance of application approval if you have such a score.

The above two are primary points that you have to fulfil when taking commercial loans. Also, you can also follow these mentioned below.

Low fixed monthly obligations

Lenders might check your Fixed Obligation to Income Ratio or debt-to-income ratio when you apply. They may reject your application if your monthly obligations are more than 50% of your income.

To lower it, you can foreclose your existing loans and pay your credit card debt. Reducing your fixed monthly obligations will make it easier to pay your new loan EMIs.

Apply for the right loan amount

A superb tip to improve your odds of getting a loan application approved is to apply for the right loan amount.

To do that, use a loan eligibility calculator. The calculator will tell you the amount you are eligible for based on a few criteria like:

Annual turnover

Existing loans

Net profit

Capital

Select the tenor carefully

The tenor will determine your EMIs and total interest that you pay. A long tenor will come with low EMIs but high interest. On the other hand, a short tenor will come with precisely the opposite.

Consider the following example:

The EMIs and interest that you have to pay on a loan of Rs. 12 Lakh at 13% rate of interest:

For 5 years

EMIs Rs. 27,000 (approx.) and total interest payable Rs. Rs. 4.38 Lakh (approx.).

For 3 years

EMIs Rs. 40,000 (approx.) and total interest payable Rs. 2.55 Lakh (approx.).

Use a commercial loan EMI calculator before you apply to determine the above and manage your loan more efficiently.

Check for additional terms and benefits

Some of the features that you must look out for:

Loan foreclosure

Foreclosure facility gives you the option to repay the loan in full before the end of its tenor.

Part pre-payment

Part pre-payment facility enables you to pay a significant portion of your loan. Availing this facility will reduce your tenor and keep the EMIs same or vice versa.

Check the charges

Commercial loans come with various fees like:

Processing fees

Document processing charges

EMI bounce charges

Penal interest

Loan statement charges

Foreclosure charges

Part pre-payment charges

Financial institutions may also impose additional charges. Hence, check them carefully before you apply.

Lastly and most importantly, do compare and check the commercial loan interest rate before you apply.