Considering a Business Loan is a great option to meet a range of business’ financial requirements. Depending on your eligibility against relevant criteria, you can qualify for a Business Loan up to ₹30 Lakh with flexible tenure options of up to 36 months. There are no prepayment or foreclosure charges. This easy funding for your business is available against minimal documentation through leading banks and Non-Banking Financial Companies (NBFCs). But before you apply for this loan, make sure you check the list of Business Loan documents required to ensure a smooth process for quick approval on your loan application.
Here are the standard documents that lending institutions ask for during the loan application process:
Essential KYC Documents
It is an essential requirement for every loan approval. All applicants must submit their company’s PAN card, Director/Proprietor/Partner PAN card, Aadhar card, and Electricity Bill/Rent Agreement/Passport.
- Income Statement
An income statement shows your business’s revenues and expenditures, recording cash flows essentially. This statement proves handy for Business Loan providers who want to gauge your business’s performance over the past years. Generally, new businesses experience more expenses than revenues. Even if this is the case, you’ll still need to submit your income statement to the lender.
- Balance Sheet
A balance sheet represents a company’s current financial situation. It contains your business’s financial components such as current and fixed assets, liabilities, equity sources, accounts receivable, etc. These figures are essential for taking a Business Loan. The primary objective of preparing a balance sheet is to demonstrate what your business owns and what you currently owe. A balance sheet with more liabilities than current assets will make it quite difficult to get an MSME Business Loan approved, or lenders may offer you the Business Loan at a considerably higher rate of interest.
- Account Statements
Lending institutions review your account statements that prove the legitimacy of your business. Lenders prefer to provide funds to companies that make recurrent revenue while managing their business expenses responsibly. Therefore, it is essential to submit your account statements.
- Income Tax Returns
Income tax returns (ITR) demonstrate your business performance in the past years. If you have established a new business, your accountant can help you project what your ITR might look like in the next fiscal year. Make sure to balance your deductions because lenders may face compliance issues owing to many tax deductions. However, a sizable portion of your taxes allows you to minimize your annual expenses.
The borrower should have a good credit score to opt for a Business Loan. A good credit score demonstrates a healthy credit history of repaying previous loans on time. However, you can get a loan even with a low credit score. The lender may ask for collateral to secure your small or MSME Business Loan. But the consequences of getting a loan with a poor credit score are higher interest rates and smaller loan amounts.
Your personal and business credit scores may differ depending on the business structure and other criteria. Usually, business and personal debts are considered separate entities. For instance, overdue payments on your student loan will not affect your eligibility for a Business Loan.
You’ll need a good credit score to increase the chances of getting approval, credit bureaus can help you make a credit report for the same. Make sure to rectify any incorrect figures in your report before applying for a Business Loan. If there are business credit card debts, repay them to improve your credit score and then apply for a loan.
Future Cash Flow Projections
Lending institutions ask borrowers about their business plans for utilizing the loan amount. Most businesses need funds to invest in real estate and buy new equipment and inventory to expand the business. You should be specific with your business plans because future cash flows are only projections, and conditions that affect your cash flows can change.
The Bottom Line
If you’re considering a Business Loan and have your primary documents in place: you can secure a loan at an attractive interest rate as low as 18% from leading institutions like Poonawalla Fincorp today. The paperwork may differ for different types of Business Loans and from one lender to another. Create future scenarios for your business as you need to illustrate these projections to your lending institution which will help them understand your integrity as a borrower.