Author
LoansJagat Team
Read Time
4 Min
26 Jun 2025
Karishma owns a business of digital signage. Recently, she secured a bulk order from a reputed retail chain. To fulfil her order, she applied for a business loan of ₹10 lakh. To her surprise, the bank declined her application. The reason? She had an:
Although her sales were strong, her financial records told a different story. Just like Karishma, many small business owners unknowingly ignore key elements that lenders assess while reviewing loan applications.
The following is a detailed checklist that can improve your credibility and loan approval chances.
Before approving your loan, the lender generally checks both your personal and business credit scores.
You need to maintain proper documentation, as banks and NBFCs will use it to verify your income and profitability.
Document | Time Period | Importance |
Profit & Loss Statement | Last 2 years | It shows income and expense trends |
Balance Sheet | Last 2 years | It shows the net worth of your business |
Bank Statements | Past 6 months | It helps assess cash flow and stability |
GST Returns | Past 12 months | It indicates compliance and turnover |
Income Tax Returns | Last 2 years | It is used to verify declared income |
If you are using too much of your credit limit, then it might give the impression that your business is overly reliant on borrowed funds.
Nowadays, many business owners delay vendor payments to manage cash flow. But this reflects poorly on your credibility.
Vendor Type | Payment Term | Importance |
Raw Material | 30 Days | Ensures uninterrupted supply |
Courier or Logistics | 15 Days | Avoids last-minute delivery issues |
Software Licences | Annual | Prevents service disruption |
Freelancers | As per the contract | Builds long-term relationships |
If you are mixing your finances, then it will not only complicate your accounting but also impact your tax and loan applications.
Aspect | Combined Account Issues | Separate Account Benefits |
Tax Filing | Complicated | Simplified with clear tracking |
Expense Monitoring | Confusing | Easier categorisation |
Loan Documentation | Unclear income proof | Straightforward for lenders |
If you have a lack of backup funds then it signals that you are financially unstable. You must try to keep at least 3 months’ worth of your expenses in a liquid or savings account.
Your repayment history is one of the first things checked by lenders.
Delay Duration | Credit Report Remark | Impact on Credit Score |
Paid on time | Positive | Score remains steady or rises |
1 to 30 days late | Late Payment | May drop 20 to 40 points |
31 to 60 days late | Delinquent | Score drops up to 80 points |
Over 60 days | Default | Significant drop, account flagged |
If you have inconsistent withdrawals or deposits then it can raise your lender concerns.
Behaviour | Why is it a concern? | What can you do? |
Sudden large deposits | May look like undisclosed income | Provide invoice or contract copy |
Multiple bounced cheques | Indicates cash flow issues | Maintain a minimum balance |
Frequent high cash withdrawals | Lacks clarity | Use online transfers and log usage |
Karishma could have easily secured the loan of ₹10 lakh if she had taken a few additional steps:
At first, these steps may seem minor to you but play a major role in lender evaluation. You must remember that your creditworthiness is judged not only by your revenue but also by how you manage, record, and report your finances.
1. Do I need to be registered to get a business loan?
Registration improves access to formal credit and schemes.
2. Is cash income acceptable as loan proof?
Only if it's deposited and reflected in your bank statement.
3. Why separate business and personal expenses?
It makes tax filing and loan evaluation easier.
4. Do late personal EMIs affect business loan chances?
Yes, especially in proprietorships and partnerships.
About the Author
LoansJagat Team
We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?
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