Overdraft Eligibility

The banks determine your business’s eligibility for an overdraft based on these factors:

• Financial Viability of the Business/Individual: Banks ask for the financial statements, tax statements, and bank statements of the business entity as well as its primary owners to check whether the business is financially viable to repay the borrowed amount. Some of the important criteria are your business’s turnover, profitability, debt-equity ratio, working capital ratio and banking turnover.
• Vintage of the business: When applying for an overdraft, the documents related to your business’ incorporation will determine the vintage. Ideally, it should be more than two years for being eligible for the facility.
• Collateral value: Most overdraft facilities require security or collateral. The bank determines the market value and verifies legal ownership of the pledged security. The Loan to value (LTV) ratio - the amount which you want to borrow divided by the value of the security -- should meet the bank’s requirements to avail the facility. Most banks require LTV to be at least 80% for lending the proposed amount.
• Credit Score: Banks determine the credit score such as CIBIL of the business entity as well as its primary owners (proprietor, partners, directors, owners of the property) to verify their creditworthiness. The ideal CIBIL score should be 750 or more.