Whether it is a unicorn or a startup, every company requires additional funds at various times to expand the business. Upgrading equipment, purchasing machinery, or building working capital requires money that firms seek through a business loan. Lending institutions ask to present the necessary documents to satisfy the eligibility criteria. Here is a checklist of everything you need to apply for unsecured Business Loans.
Eligibility Requirements for Small Business Loans
Different lending institutions have varying criteria for evaluating Business Loan applications. Here are the most common ones.
· Entity Type: Self-employed professionals running their businesses or partners, proprietors, or directors of companies are eligible for an SME loan.
· Applicant’s Age: The loan applicant should be at least 25 years or above at the time of application and not more than 65 years.
· Minimum Turnover: The minimum turnover requirement for different loan providers is unique and can be around ₹ 10 Lakh. The lending institutions also evaluate business profits after deducting the taxes, which should not be less than ₹ 2 Lakh.
· Business Activity: The minimum period of business activity differs from lender to lender. Apart from the current business age, loan companies also pay attention to the applicant’s total business experience.
· Credit Score: All financial institutions evaluate eligibility and interest rate on Business Loan based on the applicant’s credit score. Ideally, it should be 750 or above to get the best loan terms and conditions.
Since each lender has different eligibility criteria, it is advisable to check yours before proceeding with the application. Besides these, many loan providers check the applicant’s financial obligations and DTI ratio to determine their repayment capacity. The lower the DTI ratio, the better the interest rate. Those already indebted heavily may not qualify for a new loan and get their loan rejected.
Checklist of Documentation Requirements
The eligibility criteria for unsecured Business Loans revolve around valid documentation. Every institution evaluates a business’s credibility after checking its financial documents. Loan providers require three papers to process Business Loans, including internal, financial, and KYC documents. Here is a checklist of the documents needed to avail of an SME loan.
1. Internal Documents
These are NBFC’s internal documents that vary between loan companies. These include the Business Loan application form. A filled and signed loan application form with the applicant’s recent photograph is necessary to apply for a loan.
2. KYC Documents
The KYC documents help confirm the identity and address of a company, individual, or firm. Valid identity proofs include a PAN card. For address proof, an applicant might use a voter ID card, driving license, passport, or ration card.
3. Financial Documents
Most NBFCs prefer lending loans to business owners with a sufficient turnover and profits for the last few years. Therefore, they ask for a few financial documents to see their past performance. These include the last six months’ bank statements. Some important income documents include the following:
· Last two years’ ITR
· Computation of income
· Balance sheet
· Past two years’ profit and loss account
All these documents should be CA certified. Along with these, the business owner must provide Proof of Continuation, such as
· ITR: ITR for the last few years proves business continuity.
· Trade license or Establishment Certificate: Every business needs a trace license or establishment certificate to conduct business in its state.
· Sales Tax Certificate: The certificate proves business continuity through sales tax payments for the past few years.
Other documents required for a Business Loan application include the following:
· Sole Proprietorship Declaration
· Certified Copy of the Partnership Deed
· A certified copy of the Memorandum & Articles of Association (certified by the company Director)
· Board Resolution
Now that we have a checklist of eligibility and documentation requirements to get an SME loan for business, check it before applying and ensure fulfilling it to maximise loan approval chances. Find an NBFC offering quick and hassle-free unsecured Business Loans to cover urgent expenses and give your business a new dimension. Try to keep your documents ready always to get the best interest rates on Business Loan, and quick processing.