In India, entrepreneurs have option to choose from a wide range of business loan products. Some of these loan products are conventional, whereas others are modern and technology-driven. Likewise, some loans help entrepreneurs to set up new businesses, while others help them to fund business expansion and working capital needs. But entrepreneurs find it challenging to avail business loans. In addition to having an excellent personal credit score, they need to build a solid credit history for their business. Here are some tips to maintain and improve the credit score.
They need to meet the eligibility criteria set by the lending institution for the specific business loan products. They even need to submit the common documents required for business loan along with the business loan application form. The lending institutions will scan these documents thoroughly along to determine the business’s profitability and creditworthiness. Hence, the entrepreneurs must organize the documents in clear and transparent manner to accelerate business loan disbursement.
Common Documents Required for Business Loan
Know Your Customer (KYC) Documents
The lending institutions use KYC documents as an instrument to entity of the business. The KYC documents differ according to the nature and form of the business organization. For instance, a sole proprietor needs to submit Shops and Establishment certificate, whereas a partnership firm has to submit the partnership deed. At the same time, a private limited company has to submit certificate of incorporation along with memorandum and articles of association.
The borrowers also need to submit PAN card issued by the Income Tax Department while applying for a business loan. If the business is formed as sole proprietorship, the borrower needs to submit the pan card copies of the business and proprietor. Otherwise, they need to submit the PAN card copy of the enterprise, along with the PAN card of partners, promoters, or directors.
The lending institutions determine the exact location of the business based on the address proof submitted by the borrower. The borrowers need to submit documents to prove the registered as well as operating addresses of the business. They also need to provide address proofs of the proprietor, partners, promoters, or directors according to the form of the business organization.
The lending institutions assess a business’s past financial performance, turnover, profitability, and growth prospects based on its audited financial statements. They require the borrower to submit audited profit and loss statement and balance sheets, along with VAT returns and tax audit reports. Normally, the borrower needs to submit financial statements for the last three years. Additionally, the have to submit a document showcasing financial performance and projected revenue for the current year.
The lending institutions require first-time borrowers to submit bank statements for the last six months. On the other hand, others need to submit bank statements for the last twelve months. In case the business operates multiple bank accounts, the borrowers have to submit statements that depict over 75% of all bank transactions carried out during the time frame.
Documents for the Entrepreneur
The borrowers need to submit specific documents for the business and business owner. For instance, they have to submit the business owner’s driving license, PAN card, passport, Aadhar card, and/or voter’s identity card as identity proof. Likewise, they need to submit the PAN card, IT returns, utility bill, or municipality tax as address proof for the business. Also, they need to establish the borrower’s address by submitting his passport, driving license, Aadhar card, or vote’s ID card.
On the whole, the entrepreneurs have to submit a variety of documents while applying for a business loan. But the documentation differs from one business loan product to another. Also, the documents required for business loans keep changing from time to time. The requirement is different for secured and unsecured business loans also. Many new age lending institutions even leverage financial technologies to speed up business loan disbursement by reducing documentation and paperwork. Hence, the entrepreneurs must prepare the documents based on the nature and requirements of the business loan.