How does the location of the business affect loan eligibility?

The location of your business can have a significant impact on whether you are able to get a loan in India. Banks and NBFCs will use the address on the loan application process as part of their risk assessments, as this can contribute to the risk they associate with your request because some locations might have higher default rates or might cause operational concerns. The locations that have developed business areas and lots of activity will generally be looked at more favourably as these areas are generally considered more likely to have better market access and infrastructure and the possibility for growing your business.

On the other hand, if the lending organisation deems your location undesirable and/or high risk, it is likely your application will go under strict scrutiny or be rejected altogether. Lenders keep internal lists of locations deemed undesirable because they experience low levels of economic activity or political instability or do poorly in terms of recovery rates on loans.

The location of your business matters because it can affect the valuation of any security you intend to offer and some government-supported schemes are not always available in all locations, and sector-specific government schemes usually only support businesses in certain locations or sectors. To improve your eligibility ensure your business is registered at a suitable recognised and visible address and that you provide any supporting documents to show you are working from this address.

If your business services a developing area or rural region the identification of an opportunity with a sound business plan and evidence of local demand can assist in describing the potential of your venture to lenders or individual lenders.