You must have come across the term “business vintage” when you’re going through small business loan requirements. It may be an unfamiliar term to many, so let’s break it down.
What does business vintage mean?
Your business vintage simply means how old your business is or for how long your business has been operational.
Now, when we talk about how long it’s been operational, you also need to have verifiable documents that can prove this. Therefore, your business vintage covers how long your business has been operational, and for how long it’s been registered.
For example, if you’ve been running your business for 5 years, but only just decided to register it with the municipal, state, or central authorities (depending on your annual turnover), your vintage will be calculated from the day you registered, not from the day you started operations 5 years ago.
Why is my business vintage important when I apply for a small business loan?
Lenders care about your business vintage because they use it as a proxy for how well your business is doing and its future growth prospects.
If your business vintage is 2 years or more, lenders recognize that your business plan has merit. Since you’ve been working in the sector for a while, you’ve become a seasoned entrepreneur who knows how to respond to the risks and opportunities in the sector.
So, a higher business vintage gives lenders confidence that if they lend to you, you have the potential to repay the loan within the stipulated loan duration and that you will use the money they lend to you effectively.
Why do I need to provide the lender with proof of business vintage when I apply for small business funding?
When you apply for a small business loan, the lender verifies and validates all the information mentioned in your loan application. Without a document that can back up your business vintage, the lender has no objective way to verify the information and will only have your word to rely on. This puts the lender in a difficult position and makes it harder for them to approve your small business funding request.
Therefore, you are required to provide the lender with some form of documentation that has your initial date of operation on it. This could be any of the following documents*:
- Udyam registration
- Shop Act license
- GST registration (if your annual business turnover is more than Rs. 40 Lakhs)
- Labour license
- FSSAI registration
- Import-Export license
- Certificate of Incorporation
*Not an exhaustive list
By registering the business, you also initiate a credit history for it separate from your personal credit history. So, you can buy assets in the name of the business and pass down the business to an inheritor when the time comes or sell it because a registered company is not bound to the person who started it to continue operations.
How does my business vintage impact my business loan prospects?
If you registered your business at least 2 years ago, you qualify for a small business loan with a formal lender. You are also more likely to qualify for a higher loan than a business with a lower vintage that may only qualify for a start-up loan instead of a small business loan. Additionally, the small business loan you get will have better loan terms like a lower ROI and a slightly longer repayment period when compared to the loan that a younger business gets.
What business vintage does CreditEnable’s lender partners prefer?
CreditEnable partners with over 25 leading Indian lenders to get our SME customers the right small business financing to fund their growth needs.
The minimum business vintage required to become eligible for a business loan with one of our lender partners is 2 years. In addition to your business vintage, our lender partners will also assess the financial health of your business, your credit history, and the collateral you are providing to make their final lending decision.
Business Loans. Enabled Simply.