An individual might consider opting for a business loan to ensure the sustainable growth of his or her enterprise by fundraising or expanding. Consequently, keeping the necessary documents for the credit application handy is essential to expedite the loan approval process.
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8 Key Documents Required to Opt for Business Loans
The records and paperwork required can vary from one financial institution to another, generally, some necessities and documents for business loan are detailed here.
1. Loan Application Form
The renowned lenders of the country enable borrowers to submit loan applications via both online and offline procedures. Consequently, an applicant has to thoroughly fill out a loan application form along with a passport-size picture as the first step of credit request submission
Notably, a borrower must provide pivotal personal and financial details about him or her in this form. Additionally, as a borrower’s creditworthiness plays a key role in the fund sanctioning, a borrower will also have to provide details about his or her past credit behaviour, reason of the credit borrowing, and how the financial institution will get reimbursed over the repayment tenure.
2. List of Assets and Liabilities
A business loan is an unsecured line of credit. Therefore, a borrower does not pledge a collateral property against which he or she can avail the desired loan amount. Consequently, a financial institution lending credit faces a higher risk if the customer defaults on repayment.
That is why any lender will refer to a borrower’s credit score to determine whether he or she is a trustworthy debtor. This score is provided by the leading credit information bureaus of India, such as TransUnion CIBIL, to determine the repayment capability of an applicant. Consequently, a borrower will have to submit detailed records of his or her assets and liabilities both to the lender. This way, a financial institution can analyse the data to determine a customer’s net worth.
3. Identity Proof
The borrower will also need to provide government-approved identification proof. An applicant can consider using any of the documents mentioned below as ID proof:
- Voter ID
- Driving License
- PAN Card
- Aadhaar Card
The borrower will need to produce his or her Market Participant Identification Number [MAPIN] when applying for a business loan. As per SEBI regulations, this 4-digit unique number is allocated to every market participant.
4. Proof of Residency
An applicant must also keep the records of his or her address proof within reach when submitting a credit request. These documents include:
- Voter Identification Card
- Aadhaar Card
- A Ration Card
- Electricity Bills
- Telephone Bills
- Lease Agreement
5. Proof of Age
Some of the prominent financial institutions of this country mandate that an applicant must be under the age group of 25 to 65 years to avail a business loan. So, a borrower will need to provide any of these records as proof of his or her age:
- PAN Card
- Voter ID Card
6. Income Tax Returns
If a professional self-employed individual is applying for a business loan, he or she must disclose at least the past three years’ income tax returns. A borrower must also be cautious that these documents produced during the application process align with all the financial statements he or she had previously produced.
Interestingly, if the applicant is a non-professional self-employed individual, then he or she will also have to provide sales tax returns records to lenders alongside the tax returns.
7. Periodic Stock Statements and Bank Statements
A non-professional business owner will also have to produce necessary documents about stock-related transactions in the enterprise for the last three months. Similarly, the borrower must also submit the last six months’ worth of bank statements. These records allow a lender to assess an applicant’s current economic standing and spending habits – personal and organisational.
8. Audited P&L Statement and Balance Sheet
Both the Profit and Loss statement and balance sheet of a business keep a detailed track record of the earnings and expenditures of the enterprise in a certain period.
To elaborate, a P&L statement documents the revenues and expenses of the borrower’s business. A balance sheet, on the other hand, details the liability, asset, and shareholder equity of a business to help a lender understand the resource management capacity of the applicant.
That is why a business owner must provide the last two years’ Profit and Loss statement and balance sheet details of his or her enterprise when applying for a business loan. Moreover, these submitted records must also be audited by a chartered accountant.
Keeping all these documents easily accessible can benefit an applicant manifold when requesting a new line of unsecured credit. With a faster processing and verification period, the fund can be transferred to a borrower’s account in a comparatively shorter time.