How lenders size a business loan
Business lenders look at the income you declare and the cash moving through your business. This calculator is designed for proprietors, partners and self-employed professionals. It works out each of these limits and uses the lowest.
- Repayment capacity. Based on your ITR: annual profit plus depreciation, divided by 12, plus half of any other regular income. Existing EMIs are then deducted.
- Turnover cap. 25% of annual turnover for an unsecured loan, and 40% for a loan backed by property or an FD.
- Bank balance. If you enter your average bank balance (ABB), the new EMI should not exceed it.
- Security or ceiling. 70% of collateral value for secured loans, or an overall ceiling of ₹75 lakh for unsecured loans.
Why ITR income matters so much
Depreciation is added back because it is an accounting expense rather than cash leaving your business. A business with strong sales but very low declared profit often gets a much smaller loan than its turnover suggests, because the repayment limit applies first. That's why two businesses with the same turnover can get very different figures.
Worked examples
Each example assumes a CIBIL score of 750 or above and no existing EMIs. It uses the calculator's indicative rates of 14% for unsecured loans and 10.5% for secured loans.
| Business | Loan type | Likely limit | What sets it |
|---|---|---|---|
| ₹6 lakh profit, ₹50 lakh turnover | Unsecured, 5 years | ₹11.81 lakh | Repayment capacity |
| ₹13.5 lakh profit plus depreciation, ₹1.2 crore turnover | Unsecured, 3 years | ₹21.39 lakh | Repayment capacity |
| Same business | Unsecured, 5 years | ₹30 lakh | Turnover cap of 25% |
| Same business, ₹80 lakh collateral | Secured, 10 years | ₹48 lakh | Turnover cap of 40% |
The last three rows show how much structure matters. The same business moves from about ₹21 lakh to ₹48 lakh by extending the tenure and offering security. Of course, a secured loan puts your property at risk if you can't repay it.
Business loan eligibility checks
- Age: at least 23, with the loan ending by 65.
- Business vintage: 3 years or more is preferred. Some NBFCs accept 2 years, while under 2 years usually fails.
- Turnover: at least ₹12 lakh a year.
- ITR income: at least ₹3 lakh a year in profit plus depreciation, with 2 years of filed returns.
- GST: registration isn't always compulsory for a loan, but lenders commonly use GST returns to verify sales.
- CIBIL score: below 650 usually fails for unsecured loans. Secured loans may be possible from 600 at a higher rate. Lenders may also check the business's own credit record.
- Minimum loan: the calculator treats ₹1 lakh as the smallest typical business loan.
What is average bank balance?
ABB is commonly calculated from your balances on set dates, such as the 5th, 15th and 25th of each month, averaged over 6 to 12 months. It shows lenders whether the account normally holds enough to cover an EMI. Banking regularly through one main account and avoiding bounced cheques both help here.
How to improve your eligibility
- Route all sales through your bank account. Lenders can only count what they can verify.
- File ITR and GST returns on time. Two clean years of consistent returns make assessment much easier.
- Consider security if the turnover cap limits you. Secured loans in the calculator allow a higher turnover cap, a longer tenure and a lower rate.
- Choose a longer tenure if repayment is the limit. In the example above, moving from 3 to 5 years raises the unsecured limit from ₹21.39 lakh to ₹30 lakh.
- Clear costly short-term debt first. Lower EMIs raise your capacity for the new loan.
You can also explore loan against property if you own property, or read how to increase your loan eligibility.