Are your new business plans on hold owing to a lack of capital? Or is your existing business unable to grow because of a shortage of funds? If the answer to any of these is yes, you must apply for a business loan at the earliest. Timely access to funds is critical in maintaining a healthy business, whether new or old. With a wide range of options to choose from, you can quickly access funding schemes as per your preference. There are online business loans that can be applied from the comfort of your home.
While applying for these loans, every lending organisation has a specific process to be followed before sanctioning a loan. There is particular paperwork to be completed, and every borrower needs to furnish some documents to prove their credibility. A business loan is approved considering the applicant’s financial history, repayment capability, credit score, etc. Therefore, it is advisable that the applicant is well-informed about the requirements to apply for a business loan so that the chances of getting the loan approved are maximum.
Having the documents ready will also ensure that no time is unnecessarily wasted, and the business avails the loan within a reasonable time.
However, the good news is that most lenders require similar kinds of documentation and information when applying for these loans. Read on to find out the general checklists for a business loan application.
Table of Contents
1. Business Loan Eligibility
The business loan eligibility requirements are different as per the lender’s policies. However, primarily eligibility is mandated in terms of minimum age (applicant must be at least 21 years old) and maximum age (usually 60-65 years), minimum turnover and profitability requirements, age of the business (with exceptions to loan schemes directed towards new business) and it is required that the business has a formal structure – Sole Proprietor / Partnership firm / Private Ltd Co. / Trust / Limited Liability Partnership involved in the business of Manufacturing, Trading or Services.
2. Business Loan Application Form
Every lender has their specific format of the application form; however, all such forms often look for the same information. Usually, a passport photograph of the applicant must be furnished along with the application form. The applicant would also be required to sign the form at last to confirm their participation.
The following information may be asked in the application form:
- The applicant’s background (Name, address, PAN, Aadhaar, age, occupation, criminal record, if any, etc.)
- Information about the business for which loan is required (business name, type, date of incorporation, identification number, structure, management, turnover, paid-up capital, profitability, GST registration, etc.)
- Amount of business loan required and the desired tenure
- Intended utilisation of the loan proceeds
- Existing debts, if any.
- List of documents required to be submitted as proof along with the application form.
3. Mandatory Documents Required for a Business Loan
The following is a list of KYC (Know Your Customer) and income documents which are generally mandatory for business loan applications depending on types of business:
Documents required:
- Identity proof: PAN Card/ Passport/ Voter ID/ Aadhaar Card/ Driving License
- Address Proof: Passport/ Voter ID/ Aadhaar Card/ Driving License/ Electricity Bill/ Bank Statement/ Bank Account Passbook (Updated)
- Ownership proof: Agreement Copy / Electricity Bill / Maintenance Bill / Municipal tax bill/ Share certificate
- Business continuity proof: GST registrations/ Business Licence/ Trade Licence/ Shop and Establishment Certificate
- Firm Constitution: Article of incorporation/ Memorandum Of Association/ Partnership Deed
- Income Proof: Audited Profit and loss Statement/ Income Tax Returns/ Bank Statements/ GST challans/ Tax audit reports
4. Business Plan
A business plan is essential while applying for a business loan so that the lender can gauge the applicant’s profit-earning potential and ability to repay the loan amount. The business plan should ideally include a complete set of projected financial statements, including profit and loss, cash flow, and balance sheet.
5. Business Credit Report
A credit score is a rating prepared by a third party based on your credit history and payment consistency. Usually, the lender collects the credit score before approving an applicant. Therefore, it is advisable to check your credit score in advance, as any inaccuracies or discrepancies in the score can lead to the loan getting rejected. It is straightforward to obtain a credit score online or through your bank.
6. Collateral Documents
Requirements for collateral documents will depend on the type of loan. Collateral-free or unsecured loans will not require any collateral documents. For example, many collateral-free schemes are available for MSME loans. However, it is advisable to keep a collateral document ready that details the asset’s value that will be used to secure a loan if required.
7. Legal documents:
Apart from the mandatory documentary proofs, the lender may ask for certain legal documents before approving the loan depending on the type of business, such as Business licences and registrations, commercial leases, franchise agreements, proof of business continuation, audited financials, copies of contracts with any third parties.
8. Business loan EMI calculator
Before applying for a loan, you must know how much EMI you will be required to pay. You can use a business loan EMI calculator to determine how much EMI payments you would have to pay every month. The following details are necessary to calculate the EMI:
- Loan Amount
- Desired Interest Rates (%)
- Tenure in Years/Months
9. Business loan interest rate and other charges
The applicant must also be fully aware of the estimated interest rate charged for the business loan. Interest rates are usually displayed online on most lenders’ websites, or the credit officer may be contacted to get information about the rates. Apart from the interest rates, many other charges may be relevant for the loan, such as processing, documentation, collection, cancellation, etc.
The lender verifies all the information furnished, and a decision regarding approval or disapproval is taken. Any inconsistencies may lead to rejection or delay in approval. Keeping all the required documents orderly and accurate is essential to obtain a business loan seamlessly.
