Loan Eligibility · 5 min read
How Banks Calculate Business Loan Eligibility
Lenders don't simply look at turnover. They estimate how much EMI your business can comfortably pay, then work back to a loan amount. Different lenders use different methods, which is why eligibility varies from one to the next.
Income-based method
The lender takes your net profit from ITR, adds back depreciation and interest, and checks how much of that cash can service a new EMI after existing obligations. Many lenders look at the debt service coverage ratio (DSCR) — cash available for debt service divided by total EMIs. A DSCR comfortably above 1 is typically expected.
Banking-based method
Some lenders, especially for traders, look at your average bank balance over recent months and the volume of credits. The EMI allowed is linked to the balance you maintain. Frequent low balances or cheque returns reduce eligibility.
Compare available loan options for your profile with RateWise.
Check My RateTurnover and GST-based methods
Certain programmes size the loan as a share of GST-reported turnover, useful for businesses with thin margins but strong sales. Consistency between GST and bank credits is important here.
Why the method matters
A business can be eligible for a much larger loan under one method than another. Matching your profile to lenders whose method suits you is one of the main ways a loan advisor adds value.
Common mistakes
- Existing EMIs taking up too much of your income
- Showing very low profit in ITR to save tax
Frequently asked questions
How much business loan can I get?
It depends mainly on your profit, existing EMIs, banking turnover and any collateral. Lenders typically cap total EMIs at a share of your income.
Interest rates, fees, eligibility and loan terms vary by lender and borrower profile. Information on this page is for educational purposes and should not be considered a guarantee of approval or a specific rate. RateWise is a loan advisory, not a lender. Privacy Policy